Saving money is one of the critical aspects that one has to learn to build and secure a financial foundation. Many of us have learned the art to save money with our experiences of trial and error. How to save money is one of the things that is never taught in school, and the consequences of it can be witnessed in a considerable percentage of adults who don’t have any savings for emergency expenses.
A common aspect that is avoided in the initial years of our life can have a significant impact if it is taught and practiced from an early age. Young kids don’t necessarily understand everything that is fed to them, but they indeed learn things that are practiced in front of them. And having good financial skills and setting financial goals can be one of them.
Below listed are a few things that parents can do to prepare their kids to value money and spend it wisely as they grow. Children’s financial literacy is how it is defined in a broader term.
1. Wants vs Needs
The first step towards teaching your kids the value of money is to let them know the difference between wants and needs. Explain to them from early on about life necessities, such as shelter, food, and clothes. The desires may lead children to buy extra things that can be a waste of money. If you take children shopping, let them know that they have plenty of toys already and there isn’t a need to buy one more. The primary practice in the initial years will lead them to be able to spend over things that they need.
2. Start with a piggy bank.
The most approachable and most accessible way to teach your kids about the importance of money and how to save money is by providing them with a piggy bank. Tell them to fill the piggy bank with money they get and set goals. At the end of each month or two, buy them their favorite toy with their savings. This will help them to understand the value of savings and how they can be used in an organized manner. You can also think of opening a savings account or any other bank account for the same. This will also help them in setting future financial goals.
3. Set saving goals
Setting goals is significant for children who are learning to save money. Helping them in setting a plan and making them learn the value of money will keep them motivated to save money. Ask them what they need savings for. If they have the answer, support them in managing financial goals. Make them understand how much they should save from their allowance to reach their purpose effectively. This way, they will feel motivated and save more money.
4. Keep track of spending.
To be good at savings, one must know where the money is getting spent. If you provide an allowance to your children, make them write down their purchases and expenses each day and ask them to sum up at the end of every week. This activity can be an eye-opening experience for them as it will help them know about their spending pattern. Please encourage them to spend wisely and keep them reminding of the savings goals.
5. Lead by example
Habits start forming in children by the time they are seven years old. Their little eyes watch you and your every activity. They notice you taking out cash and paying for something or swapping down the plastic at times. Set a healthy example for them by spending on the right things and not letting them buy anything that they want. They will follow what they are learning now and explore options for how to save money.
6. Avoid impulse buys
Kids in their teenage are attracted to impulse buying decisions. They want to purchase things as soon as they see it. Be it a dress or a video game; they want to have things by their side. Ask them to wait for more days, or encourage them to spend their savings, setting up financial goals. When they see the amount these things may cost, they might avoid buying it and understand the value of money.
7. Get them familiar with terms.
As kids begin to grow up, they start understanding the complex language that surrounds money. Get them familiar with such terms. Debits, credits, loans, interests are some of the standard terms that are used in day to day life. Teach your kids these terms and define them. Introduce them to taxes and accounting before they start earning. It will help them in managing their money with ease. Children’s financial literacy will ultimately be a boon for them only.
8. Open a savings account.
Once your child gets aware of saving money, you can open a bank account for them. You should take your child to the bank and make them understand the norms of depositing cash in a bank. This will provide them with a thorough understanding of how a bank works and how they can acquire interest while saving money. It will motivate your kid to understand money better and will make them more responsible.
9. Leave room for mistakes.
Mistakes are not harmful. Every human being makes mistakes and learns from them. The same applies to children as well, who tend to make a hundred mistakes in their adolescence. Mostly an error that involves finances. Please put them in control of their own money and let them make potential mistakes, that will have an impact as a lesson for the future and also will know how to save money.
10. Involve them in discussions
As kids grow up, don’t hesitate to involve them in your financial discussions. Tell them about your plans or the current financial status of the family. Ask them to provide their inputs on the situations. If you are thinking of investing your money into real estate, tell your kid about the multiple transactions that the process requires. Similarly, if you are buying a car, make them search for the available options in the budget specified by you. This will help your kid understand the complexities around specific financial concepts.
It is essential to start such vital conversations about money from their initial years, to initiate how to save money process. It took us a considerable time to understand money and its value, but we can incorporate these values into our kids from early on. Using financial discussions at home as teachable moments will make them responsible for the spendings.
Provide your children with allowances and let them know about the limitations it comes with. Make them set financial goals, discuss the essential needs, and let them know that they can always have a discussion with you regarding money. Answer their questions and teach them the complexities surrounding cash as they grow up. Making savings a regular part of their routine will lay a strong foundation for their financial future. Use the above tips and enhance your children’s financial literacy understanding to access money more responsibly. Your teachings will pay for the best interest of your kid for the longest time, and the value of money will remain imbibed in their minds.