“World Savings Day celebrated on 31st October each year, was established to inform people all over the world about the idea of saving their money in a bank rather than keeping it under their mattress. It seeks to increase the public’s awareness of the importance of savings both for modern economies and for individuals alike. Savings is important in the global economy and every depositor contributes to its development.”
The day is usually marked with events and activities aimed at inspiring children and young people; to learn about money, saving, creating livelihoods, and planning for a future of financial security.
With money management not taught in the formal school curriculum; parents, teachers, and guardians need to ensure they equip their children with at least the basic concepts of personal finance before they step out into the world.
Sadly, most parents don’t deal with their children’s money issues until they are already adults. By this time, many bad habits are already established and money problems can start to become serious, costly, and emotionally charged as parents trying to plan for their future constantly have to dip into retirement savings to bail out their “children” from financial woes. Bad money habits, once established, are hard to shake off.
Young children provide parents with the best opportunity to encourage good financial habits. A research report from Cambridge University revealed that money habits are formed by the age of 7. This means that the earlier we start to introduce our children to money matters, the better. Children will typically develop their attitudes and habits through their parents’ behaviour, which will have a long-lasting impact on how they spend, save, invest, borrow, and give. Children tend to do as you do rather than what you say.
Giving Allowances to Children
The best way to teach children to manage money is to give them some. Some parents give their children an allowance or pocket money; this is usually the introduction to money for many children. Some parents feel that this could instil a sense of entitlement if they do not have to earn the money. Some parents opt to “tip” their children for diligence in their household chores; penalties and fines may also be imposed where work is neglected or done shabbily.
An allowance does provide parents with an opportunity to teach budgeting. Children should understand that they have a finite amount of money, which they should be endeavour to manage to be able to afford the things that they want. As much as possible, do not micro-manage their spending; rather guide them in their choices. Whether good or bad, they will learn from their spending choices; sometimes mistakes provide the greatest lesson.
Coping with Societal Pressure
As families are forced to cope with financial challenges, along with the growing expectations of children, the topic of pocket money and allowances can create tension. Your child may suggest that their friends get staggering sums. Don’t be swayed by societal pressure; make a decision that is best for your household. The amount you give your child depends on your family’s budget and what you expect your child to buy with the money. Discuss those expenses with them and determine an appropriate sum that includes something left over to save. Bear in mind that the vast majority of parents cannot even contemplate giving an allowance to their children.
Children should learn to distinguish between “wants” and “needs.” Don’t feel obliged to pay for every new device that your child requests, no matter how much pressure you might be under. Giving children everything they want can send the wrong signal. Having them work towards acquiring something gives them a sense of responsibility.Giving children everything they want can send the wrong signal. Having them work towards acquiring something gives them a sense of responsibility. Click To Tweet
Encourage your Child’s Financial Responsibilities
You can agree on a target amount that they should save themselves, after which you might consider matching the amount as appropriate; this will give them a sense of fulfilment as their “sacrifice” has brought about a direct benefit. When children work for something and achieve their goals, there is a sense of purpose and pride in their achievement. When they have had to sacrifice to pay for something, children learn to value their possessions more.
Part-time jobs and vacation jobs give children a practical understanding of the effort and time that is needed to earn an income. In these times of social distancing, remote-working internships may be available. Even if an internship is unpaid, if it meets your objectives, it is still worth considering. Getting some work experience is always an advantage.
Some children display entrepreneurial skills very early. If your child is showing significant skill in a particular area, you might encourage them to start a small business. This too will help instill a solid work ethic they will benefit from throughout their lives.
Make Money-saving fun for them
You can make the subject of money engaging and fun by introducing board games. The world-famous Monopoly board game is a great tool to teach children about the important concepts of Banking, Real Estate, Saving, Taxes, Budgeting, and Personal Income. This provides a great opportunity for family members to spend quality time together, as well as learn invaluable practical life lessons at the same time.
Through Robert Kiyosaki’s CASHFLOW for Kids, players learn core principles of cash flow; capital gains, assets, and liabilities in a fun, easy-to-understand game. Learning through play is one of the most powerful forms of learning.
Teach with everyday activities
Use everyday actions such as utilities including water and electricity bills, and data to teach. Such “invisible expenses” that directly affect the children’s comfort will help them learn to economize and not be wasteful. Talk about money-saving habits like turning off lights or air-conditioners when not in use; if they see the bills, these will become practical, real-life lessons that will help them to make better money-saving decisions.
Regular shopping trips provide great opportunities to teach children the value of money. Going to the grocery store is often a child’s first spending experience and as you select your purchases, involve them. Comparing prices and making purchasing decisions provide powerful money lessons.
Savings and Debt management
As soon as children have access to money from pocket money, chores, vacation jobs, they can begin to save. They should try to save at least 20% of all their pocket money in a piggy bank; subsequently, open a savings account for them at a reputable bank where they will deposit birthday money and any other income.
A savings account with some restricted access will help to teach them the discipline of saving. Also, without regular withdrawals, they will quickly learn the concept of compound interest. As their balance grows, this will be an incentive to save more as they can see the direct benefit over time.
The “buy now, pay later” mentality is endemic and can plunge young adults into a cycle of debt. The sooner your teenager understands the concept of debt, its advantages, and its pitfalls, the better.
A valuable lesson about money is that giving is as important as receiving. Discuss with your children, a cause which they would like to support and make it possible for them to visit and understand what impact their donations of either money, time or some of their belongings will have.
Financially literate children have a much better chance of becoming financially independent adults and attaining future financial security. Give your children the gift of financial literacy.
Read Also [Are your children financially Literate?]
Nimi Akinkugbe has extensive experience in private wealth management. She seeks to empower people regarding their finances and offers frank, practical insights to create greater awareness and understanding of personal finance.
For more personal finance tips, follow Nimi on Instagram @MMWITHNIMI