teaching-children-to-save-money

Teaching children to handle money is a life skill that will help your child for a lifetime. It is a valuable lesson and much needed for this generation that sees parents swipe a card instead of using paper notes and coins. You may ask “What difference does it make?”.

In previous generations, children saw the number of rupee notes reduce in father’s wallet as shopping progressed.

A disadvantage with credit cards is that children are not able to visually see the balance amount reduce. Spending money is as easy as swiping a card and signing your name.

We saw parents count paper currency first followed by coins, give it to the cashier who counts it again and hands over the balance which is counted by dad and placed carefully in the wallet.It took time but it also taught an important lesson – there is no unlimited supply of money in the wallet.

When we went Christmas shopping, my dad used to joke that he has set aside enough for our transportation back home in another compartment of his wallet so he does not accidentally spend everything.

Ya that was my dad sneaking in another money management lesson. 🙄

Recently my daughter was shocked that we have to pay for the house and utilities. We saw parents paying the electricity bill, cylinder delivery guy etc. Now e-banking is common and my little one kept repeating, “but but but it is our house. Why should we pay someone else” 😯

Introducing the concept of money to children

rare-coins-not-in-use

Start young by using coins to teach sorting, identifying shapes and numbers. Show them various currencies from different countries. Talk to them about how 1 US dollar is not the same in value as that of 1 Canadian dollar or Australian dollar.

coin-collection

For children who know that each number also has a value, guide them to discover that each coin has a value and smaller coins (smaller diameter) need not necessarily be lower in value. Generally higher values coins are made of more expensive metals. All coins are not the same size. This aids the visually challenged identify coins.

Simple activities that teach children to spend / handle money

How many pennies make a quarter? How many cents make a dollar? – These games will be apt for children who have been introduced to addition. (Check suggested reading on the left for fun math activities for preschoolers.)

Go shopping at home – Stick post its on different items in your pantry and give a grocery list to your child along with just enough money that they learn the art of  prioritizing during shopping.

Mental math challenge – For slightly older kids, challenge them to guess the balance the cashier has to return.

Real life experience – Nothing beats real life experience. Plan a day of shopping, decide a budget, make a list and go shopping and allow your children to pay the cashier. Use paper money and coins so they fully experience what happens during the transaction.  Please don’t choose a busy day and hold up the line 😉

Teaching concept of budgeting to children

We don’t spend everything we earn. We spend, save, donate, pay taxes etc. Instill in their mind that a penny saved is penny earned. Even an ant saves for a rainy day. Frugality, which is nothing but economy on the use of available resources, is not to be confused with stinginess or free loading. There is no shame in living a simple life.

Budgeting is as important as the ability to earn money.

Without a proper budget even a king can find himself a pauper very fast. It might surprise us but majority of lottery winners who won unimaginable sums of money ended up homeless. It can happen to anyone including us and our children.

Pocket money / money earned after chores can be split like this. (This model is just a suggestion. Please feel free to tweak it).

1. 10% taxes – Given back to parents
2. 10 % charity
3. 40% savings
4. 40% spending

So a kid who wants to spend 40 dollars has to earn 100 dollars. This will save them from over estimating their earning capacity. Rachel Green (Jeniffer Aniston)  sure learned this lesson the hard way when she found out what her actual take home salary was. 😀

For those who have not seen this funny episode in FRIENDS when Rachel Green asks who is FICA.

Wiki says, “Federal Insurance Contributions Act (FICA) tax /ˈfaɪkə/ is a United States federal payroll (or employment) tax imposed on both employees and employers to fund Social Security and Medicare —federal programs that provide benefits for retirees, the disabled, and children of deceased workers.”

Delayed gratification – Another virtue that is on the decline. We want it and we want it now. Instead of denying permission to buy an item, ask the child to wait for a period of time (week / month) before buying it. This self control will come in handy if difficult times come their way. If due unavoidable circumstances, they find themselves deep in debt, self control will help them climb out of debt.

Listen to them – Instead of dictating what the child should buy or cannot buy, listen to them. Set a time when the child has to come and build a logical case. If you are not fully convinced, RESPECTFULLY state why their reasons for that expense is not convincing. Ask them to come back in a day or two. Encourage children to research about the product and find out where it is on sale. This is a desirable alternative to parents buying things prompted by temper tantrums. This teaches the child to to negotiate and think it through before making an appeal to purchase something. A nice opportunity to practice controlling the urge for impulse buying later in life.

Get a bank account – While piggy bank is good enough for preschoolers, open a bank account when they are a little older. I remember having an account in a nearby post office where we could deposit a minimum of 2 rupees. I watched my account grow to 300 rupees. A big amount for kids my age at that time. 😀

Right now my daughter is not very fond of the bank. We took her to the bank so she can see with her own eyes how many dollars she could get for the coins in her piggy bank. She enthusiastically pushed her coins and was excited as the machine rapidly counted the coins. When the number stopped at 104 dollars and the machine pushed out a receipt and dollar bills, without giving back her coins, she accused the machine of stealing her coins and giving her very few bills when she gave the machine “millions and billions of coins” (ya her words not mine 😀 ). Now she has no intention of trusting the bank with her coins ever again. :mrgreen:

Getting cheated is part and parcel of life. By shielding children from experiencing disappointments, we are damning them for bigger disappointments in life. When children handle money, they will fumble at first and might get cheated by unscrupulous cashiers. Over billing is more common than we think. It is okay because that is how they will learn to take a look at the receipt before walking out of the store.

Frugality is not cheapness. While teaching children to handle money carefully, also teach them to enjoy money. After all we work hard to earn it.

Few people have extreme views about money. Either they love it a little too much or consider it evil. Money is a powerful tool that can be used for good or evil. It depends on how we use this tool.

Children should be taught to develop a healthy balanced relationship with money.