The habit of saving is something that once inculcated will be ingrained for life in children. In today’s world, while the kids quickly understand the power of money, it is tough to teach them the value of it. We can make them understand the true value of money by introducing positive financial education from a young age. Here are a few steps to help introduce and inculcate the habit of savings in children of all ages.

Start Young

Start introducing the concept of saving, to kids as young as three. As children, many kids receive money from elders as a form of blessings for special occasions. Get a small piggybank and ask them to put that money in it. After a few months show them the number of notes growing, this will get them excited. While kids won’t really understand the value of money, they will understand that the money does grow when kept in a safe place.

Another way is to give kids spare change to put in the piggybank regularly. Say Rs.1 coin a day. For a child it is fun, to take a small coin and hear it clang with other coins when dropped in the box, but once the box is full and you sit to count, they will be surely excited to see the volume of coins.

Use three jars approach (Spending, Saving, Investing)

Once the kids are a bit older, say about 8 years of age, ask them to have three jars with the following labels “Spending” “Saving” “Investing” Did you just say what investing? Hold on, will explain in a bit. As kids around eight are already introduced to the concept of money, it is easier to explain savings and investing to them.

Tell the children that each time they get some money; they need to think wisely and decide which jar they need to put that money in. Explain to them the concept of distributing the money received in various jars to achieve various goals.

Spending could be the amount they want to save up for their favorite chocolate, hairband, compass etc. The savings jar will have some money that they wish to put in the bank and use for a greater purpose. The investment jar could be the money that they want to see grow. The next time your child asks for a new compass or a hairband or something similar. Let them ask the price of it and try collecting that money in their spending jar. Everytime a relative gives some money; ask them to divide that money in all three jars.

Open a bank account

For this I would recommend the old world banks where we were given a passbook instead of ATM cards. This is for slightly older kids , for eg- kids above the age of 10. Take them to a bank and introduce the banking system to them. Carrying forward the three jar example, the savings jar money can be put in a bank. Get them to update their passbook regularly to understand the money that is saved up and the kind of interest they are being paid for it. Though it would be a nominal amount, children will soon understand that the right way to save money is to put them in the bank. 

Once the banking system is understood by the children, you can slowly introduce them to other functions like withdrawal, cheques and other bank instruments.

Show them the regular savings and its growth

Once the children are well versed with banking system, it is time to introduce them to other savings and investment ideas. Most banks offer the options of Fixed deposits and recurring deposits. Taking them to the bank, showing them the current rate of interests and explaining how that will improve their savings is a good way to start with investment. Again borrowing from the 3 jars approach, the jar of investment can be used here. I would suggest start with a recurring deposit. As the child realizes that a small amount is being set aside every month for investments he/she would be much more conscious about the amount being spent and the amount being invested. This is perfect for children above 14 years. 

14 years plus children will also be receiving some money as pocket money. A savings bank account and an investment option will ensure that they judiciously think about their expenses. It will also make them conscious about the value of money and how saving can help them achieve their long term goals faster. 

Work towards a Goal

Today, more and more kids are trying various career options, working while studying or even taking a break from learning to explore their options and their interests. This is the right time to get them investing and focus on a long term goal. Children in the age group of 17+ will have some idea about the kind of course they wish to take up or the kind of experience they wish to invest in. Discuss the goal and think of a good investment option. 

The goals could range from studying abroad to taking up wildlife photography course in summer vacation. While this saving might not cover the whole expense, if it can cover a part of it that too will be exhilarating for the children. The investment instruments could be mutual funds, SIP’s, stock market, bonds or other instruments. Depending on the goals decide the investment option.

After a certain age it is always good to include children in financial discussions. They might not have a solution to things, but listening to how the solutions are being arrived at, itself is a great learning. . It will also make them feel responsible about important aspects of the house. Positive financial education and good money management lessons will go a long way in smart handling of money and overall development of a child.