Financial Planning: 5 Things You Can Teach Your Kid about Saving Money

 

As a parent, you want the best for your child, but you will never know what the future holds for them. This is why you prepare them to become strong, resilient and responsible individuals.

Fortunately, since young children tend to malleable, they can also be molded to become financially far-sighted. You may have learned the value of financial planning the hard way, but you can inculcate these lessons in their upbringing if your focus is on your children saving money:

The concept of money

The curiosity of a child is perhaps the greatest instrument in a teacher’s toolkit. Children can be very inquisitive about the origins and use of money, particularly currency notes and coins. You can also teach about the barter system, the concept of money and how it came to be used to encourage financial literacy for kids. Regale them with interesting stories and anecdotes to keep their attention and simplify your lessons. Most importantly, use this opportunity to teach them about the rewards of employment and hard work.

Budgeting: needs, wants and greed

You can teach your child how to chart out a plan for spending their money. This will help them learn the difference between surplus and deficit. As part of this lesson, you can also make your child understand the difference between needs, wants and greed.

They should learn that needs constitute basics such as food, shelter, clothing, education and healthcare. HDFC’s Click to Protect Life is a good example that can illustrate the benefits of an insurance plan to protect your needs.

Your child’s wants will include items or services needed for their hobbies, interests and entertainment. You can also discourage greed, especially in a time when advertising is being used aggressively to convince consumers that they need to spend their money on unnecessary items.

Savings, investment and risks

For a long time now, piggy banks have been a staple in toy shops and can be used in teaching kids about money and the benefits of saving. Encourage them to save a portion of their pocket money and when they have collected enough, they can buy something expensive that they like. As your child grows up, you can introduce them to investment and multiplication of wealth.

Teach them about various types of investments, profits and interest rates and the relevance of these concepts in their old age. You should also warn your child about the risks in certain types of investments such as stocks.

Taxes

As they grow older and embark on their careers, young professionals often complain about how most schools and colleges neglect to educate them about practical matters such as taxes.

As a parent, you can take matters into your own hands and teach your child about why taxes are imposed, the various types of taxes and the responsibilities of each citizen to adhere to taxation rules. You should also explain the concept of income tax returns and how taxes factor in when financial planning is done.

Also Read: How to Get a Good CIBIL Score at a Young Age?

Use of loans and credit

As much as you would like to steer your child away from the world of loans and credit, giving them a practical understanding of these matters is imperative. Used responsibly, loans can help meet life goals such as buying a house, purchasing a car or going on that trip that you have been planning for years.

Before your child steps out into the real world, you can give them a taste of borrowing and repaying at home. Lend them money if they want to buy something that they cannot afford on their pocket money alone and set a strict deadline by which they must pay you back.

Observe the means they use to repay you and advise them on it. Moreover, you should teach them the importance of maintaining a strong credit score and how this helps ease borrowing.

 

ARN: ED/10/21/25883