Teach your kids to save money

I’m sure you’ve noticed how your child’s favourite cricketer is your favourite too or she is as eager to jump into the pool as you are. Maybe they cuddle up to you with a book when you are reading too. Teaching your child to save is much the same. Conscious lessons and practical examples are certainly required but they should also learn by your example. Otherwise kids mimic what you do even if you tell them to do the opposite. Do as I say, not as I do never works. Like most of their lessons, it needs to be built-up over time and reinforced with practice. Taking my own example, Dad was a spender but Mom was the careful one, squirrelling away money for the future. I’m lucky that the example she, not he, set took to my heart and I too started saving.
 
Most people think of financial decisions as complex ones which are neither discussed with or around children. How then does one teach them about understanding and taking such decisions? You could break down the complexity and talk about it in small, understandable bytes as and when it is happening. Or you could park it for later when you have the time to talk about it and the patience to answer their questions (which will be quite a bit). I give you a few current examples (my kids are seven years old so these suited to that age group)
 

• A pack of chips costs Rs 10 while a Kinderjoy egg costs Rs 40. If your child buys a Kinderjoy, he has to spend more out of his pocket money. He forfeits buying 3 other packets of chips but he gets a different, possibly a better quality product. He also gets something more -  a toy – that he can play with for longer.

Lesson imparted – money is a finite resource and requires allocation
 

• Set a budget before going to the toy shop. Example: You could tell your daughter – you can buy as many toys as you want but the total cost cannot cross Rs 2,000. When you are at the toy shop, she could first set aside all the toys that catch her fancy. Once the initial selection is over, she can further examine her choices and shortlist them into a smaller list. You can them help her to total up the cost and decide which ones to take within the agreed budget of Rs 2000. Trust me, the less attractive ones quickly get separated and both of you will come away happy

Lesson imparted – A budget keeps a person focused on their goals, organizes spending and takes away conflict.

• You could explain how and why we pay the household help or the cook/gardener/driver. Paying for services could be an abstract concept (since there is no physical exchange of money and goods). However children do see the time and effort put in by the help and will understand how this exchange works.

Lesson imparted – time is money
 

• Whenever you buy something for the family or yourself, I assume you must be evaluating choices and making informed decisions. Sit your child down and explain your decision-making process. They may not understand everything but they will begin to understand that it’s not just about going to a shop to buy whatever you want and then paying with a credit card that somehow has endless money on it 

Lesson – money doesn’t grow on trees
 

• Your child probably gets pocket money and sometimes an indulgent relative may gift money too. Try and inculcate a habit in your child to put away some part of the money as soon as she gets it. Most people make the mistake of not saving when they start earning, not only missing out on the savings but also on the years of compound interest it brings. This is probably the best habit you could inculcate in her.

Lesson imparted - A penny saved is a penny earned
 

• Teach your child to examine products closely and to compare it with similar offerings. If something looks too good to be true, then it probably is. It’s better to research it properly or avoid it.

Lesson imparted – all that glitters is not gold
 
Teaching them the meaning behind each common proverb in bold above will not only help it stick in their minds but will also earn them some brownie points with their teacher ;)
 
When it comes to older children, they can be given access to a savings account and encouraged to operate it. Under supervision, they could even do things like booking tickets, online shopping etc. However, investing in mutual funds or any other long-term investment can cause two complications – either it can’t be sold off easily and/or the proceeds get locked till the minor attains eighteen years of age. This could be frustrating for a teenager / young adult so best avoided for their pocket money. If you really want to save money for them in that way, it would be better to make a separate portfolio within your portfolio, which you could operate on their behalf.
 
Your child could have a very different thought process from you so it is important to start early and build up the discussion to their decisions and savings slowly. Do reach out to me at mathewpravin@yahoo.com for any more inputs, suggestions or feedback.

You can view my YouTube channel here