Teaching them to save

The biggest challenge for parents today is that children are growing up in a virtual world. Unlike in the earlier decades, most financial transactions today happen on the Internet or through plastic cards. Children seldom see their parents spending cash (which they associate with ‘real’ money). Hence, in this digitised world, teaching kids about the value of money and savings becomes extremely significant as well as challenging.

That said, as parents, you can guide children by way of simple activities such as setting goals and visualising dreams, making good choices, and learning how to plan, spend, save and share. Over time, you’ll see that, through everyday conversations and fun activities, you can help your child become financially empowered.

There’s a lot more to teaching kids about money than just handing over the bundle of notes or bag of coins to them. By giving children early lessons in money and savings, one can help them learn to be responsible. It’s best to start at the preschool age, where childcare providers can try to instil healthy habits and attitudes towards managing money. Lessons in the intricacies of financial management, though, can wait.

Working for it
When your children are really young, they probably won’t have an allowance. However, children as young as two can do some small chores at home — like putting their plates in the sink or picking up their toys. Some parents are against giving allowances, but if you are open to the idea, it can be a great way to teach children about money. After you decide on the amount to give your child, your next decision will be to determine how your child will earn that money. Children will learn the value of money very quickly if they work for it. Therefore, it is important to identify the right task for them, however small it may be.

Needs vs wants
It is important to teach your children the difference between needs and wants. You should explain to them that a need is higher on the priority scale than a want. So, while wants can wait, needs should be addressed immediately. There are many videos, songs and activity sheets available on the Internet that can be a great aid for parents.

Worth the wait
Most often, for kids, it is hard to wait for the things that they want — whether it is a toy they are desperately eyeing or a muffin they are craving for. Savings is also a kind of waiting — waiting to collect enough money to use it later to buy something they want. So, when children learn to wait, they learn the basics of how to save.

The famous “Marshmallow Test” by the psychologist Walter Mischel also supports that waiting is a habit that should be taught to children at an early stage. The study began in the early 1960s at Stanford University’s Bing Nursery School, where Walter and his graduate students gave children the choice between one reward (like a marshmallow, pretzel, or mint) they could eat immediately, versus a larger reward (two marshmallows) for which they would have to wait alone, for up to 20 minutes. Years later, Walter and his team followed up with the Bing preschoolers and found that children who had waited for the second marshmallow generally fared better in life.

Let them ‘see’
One great way to teach young children about savings is to have them see the savings — say, by putting the money a transparent savings jar or a piggy bank. For younger kids who can’t add or count, you may draw a line on the piggy bank that gives them a sense that they’ve to save upto that level. In this way, they get a sense of moving towards a goal.

You could also consider matching their savings when you think that they are making a good investment. If you do this, make sure to explain why the investment is a good one — for example, explaining to them why it is important to invest in a good quality toy (which may be a little expensive). When they are older, you can also encourage them to start putting some of their money in the bank, or set a specific weekly or monthly instalment for this.

Set a good example
Younger children enjoy emulating their parents. So, if they see you saving, they will also want to save. You can set a good example by having your own savings jar. Another way is to talk to your spouse about money in front of your children. You must be careful about this though because you don’t want to worry your kids by talking about serious financial troubles.

However, as long as you can talk about financial goals in an easy way that the children can overhear and understand, it can be a good start.

Also, talk to your children directly about money and let them interact with you about financial matters. It’s not a bad idea to let your children add reasonable items to your grocery list. At the store, show them two similar items with different prices.

Explain to them that some brands cost more. Allow your child to help you put fruits or vegetables on a scale and explain that you sometimes pay for the amount of food you buy and that using the scale helps you see how much you will spend.

The fun factor
Most children will be more interested in learning about money if you make it a fun activity for them. Consider making or printing a savings chart for your little ones. Also, consider checking out some of the online videos designed to teach children a lesson or two about savings in an entertaining manner. You can also introduce a travel game to kids where they start the game by selecting a travel destination while using the play money given to them. This can be followed by activities like shopping to prepare for the destination, chores to earn money and reach the destination with some savings in hand.

As your children get older, you will need to come up with new ways to teach them about money. But it is definitely worth starting when they are young. It’s never too early to help avoid the pitfalls of bad financial habits. Teaching your kids about money will encourage them to be financially responsible in life. As a parent, isn’t that something to work for?

(The author is vice president, Sesame Schoolhouse)