How to teach children to save from a very young age, and why it is important

Teaching children to save money involves practical steps and consistent reinforcement to build positive financial habits. Here are some effective methods to teach children to save:

1.      Set a Good Example

·         Demonstrate Saving: Let your children see you saving money by transferring money via digital banking services to a separate account, or depositing funds each month. If you work overseas, you can show them how to save by setting aside a certain amount as savings when you send money to Sri Lanka. Explain why you save and how it helps you achieve your goals.

·         Discuss Finances: Have open conversations about budgeting, saving, and spending to normalise these topics.

2.      Introduce a Piggy Bank or Savings Jar

·         Visual Savings: Give younger children a piggy bank or a clear jar so they can see their money grow as they add to it.

·         Goal Setting: Encourage them to set a small savings goal, like buying a toy, and track their progress.

3.      Open a Savings Account

·         Bank Visits: Take your children to a bank to open a savings account. The best children’s savings accounts in Sri Lanka offer gift incentives and higher savings interest rates in Sri Lanka, to encourage savings. Explain how interest works and the benefits of keeping money in the bank.

·         Regular Deposits: Encourage regular deposits, even if small, to build the habit of saving.

4.      Use Allowances Wisely

·         Earning Money: Provide an allowance tied to chores or responsibilities to teach the value of earning money.

·         Saving Portion: Encourage them to save a portion of their allowance, such as 10-20%, before spending the rest.

5.      Teach Budgeting

·         Simple Budgets: Help them create a simple budget, dividing their money into categories like saving, spending, and sharing.

·         Track Expenses: Show them how to track their expenses and compare them with their budget.

6.      Set Savings Goals

·         Short-Term Goals: Encourage short-term savings goals for items they want, like a toy or a game.

·         Long-Term Goals: Discuss long-term goals, such as saving for a bike or even college, to instil the idea of planning for the future.

7.      Reward Saving Efforts

·         Matching Contributions: Offer to match their savings contributions to motivate them to save more.

·         Incentives: Provide small rewards or privileges for reaching savings milestones.

8.      Teach About Needs vs. Wants

·         Prioritising Spending: Discuss the difference between needs (essential items) and wants (non-essential items). This helps them make informed spending decisions.

·         Decision Making: Involve them in making spending decisions, discussing the pros and cons of each choice.

9.      Use Educational Tools and Games

·         Financial Games: Use board games, apps, and online resources designed to teach financial literacy in a fun way.

·         Books: Read books about money and saving that are geared towards children.

10.  Encourage Entrepreneurship

·         Small Business Ideas: Help them start small businesses, like a lemonade stand or dog walking, to learn about earning, saving, and reinvesting money.

·         Business Planning: Guide them in planning their small ventures, setting goals, and saving a portion of their earnings.

11.  Discuss Real-Life Scenarios

·         Practical Examples: Use real-life situations to discuss financial decisions, such as comparing prices while shopping or planning a budget for a family trip.

·         Mistakes and Learning: Share stories of financial mistakes and lessons learned to provide practical insights.

12.  Teach Charitable Giving

·         Sharing Money: Encourage them to set aside a portion of their money for charitable giving. Explain the importance of helping others and being socially responsible.

These strategies can help your children develop a strong understanding of saving money and lay the groundwork for financial responsibility and independence in their future.

Why should we teach children to save?

Teaching children to save from a young age is crucial for several reasons:

·         Financial Literacy: Early exposure to saving habits helps children develop a basic understanding of money management. It lays the foundation for financial literacy, which includes skills like budgeting, investing, and understanding financial products.

·         Habit Formation: Habits formed in childhood often persist into adulthood. By teaching children to save, they develop positive financial behaviours early on, which can lead to responsible money management throughout their lives.

·         Understanding Delayed Gratification: Saving teaches children the concept of delayed gratification. They learn that by postponing immediate pleasures, they can achieve more significant rewards in the future. This skill is valuable not only for financial matters but also in various aspects of life, such as education and career.

·         Building a Safety Net: A savings habit helps children understand the importance of having a financial cushion. They learn to set aside money for emergencies or unexpected expenses, which is a critical aspect of financial security.

·         Goal Setting and Achievement: Saving money helps children set financial goals and work towards achieving them. Whether it is buying a toy or saving for a larger future expense, achieving these goals can boost their confidence and teach them the value of planning and perseverance.

·         Reducing Dependence on Credit: By understanding the value of saving, children are less likely to rely on credit for their needs and wants. This can help them avoid debt and develop a healthier relationship with money.

·         Financial Independence: Learning to save helps children understand the path to financial independence. They learn that they can rely on their own resources to meet their needs and wants, fostering a sense of responsibility and self-reliance.

·         Teaching the Value of Money: When children save, they learn about the effort required to accumulate money. This can make them more mindful spenders, as they understand the work and patience involved in saving.

·         Encouraging Generosity and Charity: Children who learn to save may also learn the value of sharing their resources. Understanding how to manage their own money can make them more empathetic towards others and more willing to contribute to charitable causes.

·         Real-World Applications: Teaching children to save can also involve practical lessons, such as using savings accounts, understanding interest, and making investment choices. These lessons prepare them for real-world financial decisions they will face as adults.

Teaching children to save instils essential life skills that contribute to their overall well-being and future financial stability. It equips them with the knowledge and habits necessary to navigate the financial complexities of adult life successfully.