How to teach kids about saving money

Published: June 4, 2021 at 8:02 am

Last Updated on June 4, 2021 at 8:02 am

Sometime last year, I was on a Zoom call with a few school friends. While we were discussing the good old days and how the school system worked differently for all of us, we stumbled upon the idea of teaching about politics and finance in school. 

About the author: Smriti is an author, freelance content writer and avid reader. She quit her six-year-long IT career to embrace her love for writing. Her previous article – How much money can I make as a content writer – went viral. She writes content across genres and takes pride in her ability to research and carve magic with words. Over her six years of content writing experience, she has developed a knack for technical and digital marketing content.

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How many of you have thought that it would have been better to have learnt about stock markets and finance rather than knowing that ‘mitochondria is the powerhouse of the cell’? Have you ever thought that life would have been a lot better had they taught us about politics?

Well, I have thought about these a lot. But over the past few years of being a parent and then moving on to handling education at home, I have realized that kids spend more time at home than at school. So, rather than blaming the education system pointlessly, it makes better sense to make the effort and equip them at home. Talk to them more, be open, do not have taboo topics. Open discussions pave way for a lot of learning.

Why do kids need to learn about finance in the early years?

I had read somewhere that it is now urgent to make the coming generation financially literate. They will learn the alphabet even if you don’t do a lot. Made a lot of sense to me. I started reading up and this article is a result of my reading, my conversations with other parents about financial knowledge for children and my experience with my child.

I have had countless parents and non-parents argue with me that they are too young for such heavy discussions. Let them be children! It is their age for dinosaurs and fairies and monsters, leave money for later! These are some arguments I received. 

Well, saving money is a habit and habits aren’t built in a day. Most of us adults do not have the habit as yet. I am one of those adults who have struggled to control their materialistic urges after they started making good money. Many of us have overspent on our credit cards and earned only to pay the bills. We have made wrong decisions, landed in a soup and then regretted the absence of good financial guidance in our lives. Why let that happen to the kids? 

How can I start talking to them about money?

You do not have to plunge into mutual funds and stock markets while talking to 3-year-olds. It helps to have short and simple conversations about savings, goals, needs, budget, allowance etc. The good old piggy bank is a great way to make it fun. My 4-year-old loves pretend play. We occasionally play games where he is the fruit seller/ shopkeeper at the toy shop/ puncture guy etc. I am always the customer that has several issues such as lack of money, no reusable shopping bag, being too greedy etc. Those are times spent having a lot of fun and learning.  We giggle a lot and we reinforce concepts such as alphabets, numbers, fruits, colours etc. too. Older kids can play board games like monopoly or hotel tycoon.

What exactly should we talk about?

There is no fixed syllabus, but here are some things I base my interactions around:

Explaining the difference between wants and needs: This is a very easy topic if you believe in it. Once you have the difference straight in your mind, it is easier to explain to kids. 

Tell them that needs are clothes, food, shelter, books and wants are new clothes when old ones are still ok, more toys, etc. Do not buy all toys and devices they ask for. Explain how overconsumption hurts. When you buy them toys and books and tell how they needed those, what purpose they fulfil. What you talk about will depend on their age. If I don’t buy a second set of crayons that my child asks for, I explain how he already has one and spending on another is a waste. I also explain how one pair of shoes is a need but the next is a want, especially if we are attracted only to the Peppa pig printed on it.

Thinking before spending: This is one lesson that I learnt too late. However, I have tried to teach it to my child. If you want to buy something, think about it. Give it some time. If you still feel strongly about it after 2-3 days, buy it. Most times, the impulses recede and one doesn’t want to buy the stuff anymore. The concept works great for kids too. Remember, they are more understanding than we can comprehend.

Let them earn money and save it: While I believe in piggy banks and pocket money, I don’t believe in money for regular chores. Making the bed, cleaning up the toys, helping with brooming, washing vessels don’t warrant any money in my rulebook. You can make your own rules. However, I do believe in doing paid tasks when they are older. You can set tasks that they can earn for or help them get a job. They can help teach kindergarten children in the building or share their skills with others. They can even help the neighbours with running the errands for a tip. Later, tell them to save a portion and spend the rest. Do not motivate them to save it all. Learning to spend is as important as learning to save.

Talk about savings: Tell them how you got a new refrigerator after saving for it. Help them save for their goals. When they want to buy a new video game or throw a party for their friends, help them count the money in the piggy bank. You can choose to pay the deficit and ask them to pay in instalments from their allowance or future chores. A friend suggested keeping 2 piggy banks, one for savings and another for money to spend. The child decides how much goes into the savings box but cannot touch the money till a fixed time, much like a fixed deposit. You can make as many changes as you can depending on your child’s age.

Help them record how much they spend and save: Just a small notebook can do the job. Help them write what they spent on and how much money is left now. This can be used later to talk about spending patterns and discussing if it would be better to save more to reach saving goals faster.

Take them to the bank: I took my 3-year-old to the bank before the pandemic. He was intrigued to see everything happening there. I don’t think he remembers much, but going periodically can help. Once they are 6 or so, you can ask for help with filling slips or just handing over the papers to the employees.

Get them a bank account: As they grow older, a bank account can replace the piggy bank. You can get the passbook printed and show them the amount of money they have and how they can spend it later. It is also a good way to talk about interest and how money grows when saved.

Teach them charity: This is also a lesson in finance. Tell them how some people in dire situations cannot afford to fulfil their needs and how we can help. This will also help in understanding privilege and the value of money.

Let them make mistakes: Do not stop them from making their decisions because you are anticipating mistakes. Talk about the mistakes later and teach them how they could avoid them. Practical learning!

Check if they are going overboard with savings:  You don’t have to raise misers, just people who save enough and think before they spend. Do not forget to teach them that life is for living and thus balance is very important.

I cannot emphasize enough that talking about money is important. It is like handing them a superpower! If they are comfortable talking to you about it, they will come to you for advice and suggestions later in life too.

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Pattabiraman editor freefincalDr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over ten years of experience publishing news analysis, research and financial product development. Connect with him via Twitter(X), Linkedin, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free investment advice.
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