By Ankit Gera
Every parent wants the best for their children. Since the parents are the first teachers, it is crucial that they impart an important lesson of saving money to children at an early age. The ability to save money will lay a strong foundation for building their lives, helping them to secure their future.
Parents often provide weekly or monthly allowance (also known as pocket money), which is the first step in budgeting lessons for children. From a macro perspective, management of this amount is essential. According to a recent study, the pocket money of Indian kids on average was the same as the GDP of 52 countries.
Without an idea of how to spend money, they will have many financial difficulties in future. Money is essential for even making the most basic transaction, whether to buy food, clothing or even shelter; you name it, and you need money to buy it. Here is how you can teach your children to save money:
Give them chances to earn money
Firstly, for the child to start saving, there has to be an opportunity to earn money. After completing a chore, paying your child can be one way to accomplish that. It is essential to understand the difference between earned money and given money. Not all tasks they complete have to be monetarily rewarded; certain chores are done as responsibilities.
With this, the children will be very well aware of balancing their money and negotiating for a raise; this way, they will earn money and save it at a very young age. Nearly 22,000 Crores are given as pocket money to Indian children, and out of this not all spend their money; almost 50 per cent of the kids save their pocket money.
Guide them to make smart spending decisions
Now that your child has a steady flow of ‘income’, it is necessary to help them make smart money spending decisions. Giving your child money and an allowance whenever they demand will spoil them. The only thing you need to do is, limit their allowance; this is the amount of money you will get, and you will not get a penny more than that.
One thing that can be done is if they do not complete a specific task and the parent is doing it on their behalf, ask them to pay the money to the parent for completing the task. Spending or saving money is all about the personal decision that is made.
Follow the 50/30/20 rule
A simple approach to saving money can be following the 50/30/20 rule. Saving money is a great habit, but we want to build wealth. Instilling the habit of saving money from a very young age will help them differentiate that earning money is not all about spending it; saving money regularly should be one of the essential financial practices that need to be followed. Now using the 50/30/20 rule, which allows you to separate the money into three buckets-
- Fifty per cent of the money earned goes into fulfilling the ‘needs’, which the children should be allowed to choose at their end
- Thirty per cent of the earnings have to go into fulling the ‘wants’ like phones and games, and rather than getting these goodies for the children, helping them save for something they desire can be very fulfilling (especially when they are adults)
- Twenty per cent goes into savings which should be taught religiously.
Teaching your child to spend and save is very important. There are often circumstances where the budgeting or saving will not work out. But one thing that this will help find out where the money is going and point out where the unwanted expenditure can be avoided.
Teaching your children the value of money under the parent’s guidance will instil the same money-related values that the parent practices. They will see the parents making the right money decisions and learn their spending habits inspired by the parents. Educating children about personal finances is a long process, and it will happen over time and gradually, but no doubt will turn out to be a positive outcome. This will help your child to manage personal finances and ensure that they remain debt-free in the future.
(The author is Co-Founder of Junio. Views expressed are his own)