Penny for your tots: How to teach kids about spending and saving

You are walking past a shop when a pretty doll catches your six-year-old’s fancy. “ Mamma , can I have that doll? Please, please,” she starts chanting. You remind her of the dozen toys lying around the house. “But they don’t have that glittery gown,” she cries. “My money is over beta,” you say, flashing your empty wallet — the usual situation in the last week of the month. “It’s okay, mamma, just Gpay like you did for the taxi uncle,” she says, pulling you inside the store. How can you get out of this tricky situation? Shubhada Dayal , co-author of ‘A Kid’s Guide to Money’, tells us how parents can teach kids about the value of money

The single biggest problem in communication is the illusion that it has taken place,” George Bernard Shaw famously said. This paradox of communication is especially true in a parent-child relationship. Add a subject as complex and sensitive as money to this mix, and the dialogue seems predestined to fail.

We may admonish our children for not understanding the value of money, but we need to realise that what we consider irresponsible behaviour around money stems from not understanding money at all.

Money is an abstract concept and children, especially those below six, cannot process abstract ideas easily, so we need to make it tangible for them. The next time you are at a store, show your child (even a two-year-old) how you have to give money if you want to buy something, allowing them to feel the notes. By the time they are five, kids become capable of doing basic calculations to tell you how many one-rupee coins they would need to give to get a chocolate worth Rs 10. And if digital payments are your way of doing things, show them the amount on your screen, and say, like you have a piggy bank, I have a bank account, and using my phone, I have taken out Rs. 250 from there, so now my bank has Rs. 250 less.

During my interactions with parents, they frequently ask about how to navigate peer pressure amongst children — the ‘my friend has this water bottle, I want it too’ syndrome. It is a valid concern for parents, and conversations around it must happen. But instead of reaching out for the ‘money does not grow on trees’ button, build conversations around ‘value’, rather than price. Ask them: “Which of these two toys was more fun or useful?”

Talk to your child about how some things may be important, despite a steep price (school fees or healthy food), and some are a waste, despite being cheap (a toy that lasted just two days). Get them to categorise things around the idea of value. Ask them to sort their possessions into two buckets — ‘It was useful, made me happy for a long time, and therefore was worth it’ or ‘The joy didn’t last long. Not worth it.’ Over time, the idea begins to crystallise.

The saving grace

Every parent wants to teach their child to save money. But how can you explain the importance of saving to your child? Should you tell them that they must learn how to save money if they want to be successful when they grow up? Read the sentence again and you will realise that ‘when you grow up’ and ‘successful’ are both abstract. Children cannot visualise that far and don’t understand what ‘success’ that far away means.

Instead, you can talk about the advantages of saving money by connecting it to a topic they relate to well, such as sports. Let’s say your child is into badminton, then you can say, “Just as by practising thrice a week, your backhand is now exceptional, in the same way, if you practise putting aside some of your money every month, one day your piggy bank will be so full that you will be able to buy that fancy pencil box all by yourself.”

Next time your child receives money from a relative, let them split that money —— some for spending, and the rest for saving. My only word of caution here is that your consistency is more important than theirs. Do not expect magic in one spectacular dinner table conversation. You have to be at it.

Knowing their limits

The defining characteristic of money in our lives is its finiteness. It is important for kids to grasp that money is a limited resource. If you have navigated conversations that go, “no, we don’t have the money”, countered by “withdraw from the ATM ” or “use your card”, there is a gap in understanding. Instead, you can respond with, “For this month, I have Rs 200 for buying any extra items that you may want. If I use my card or withdraw extra from the ATM, I cannot pay for your Sunday pizza.”

While all this is intuitive for us, from a kid’s point of view, there are two ideas here that you are conveying: that money comes to us in limited quantity and second, because it is limited, we prioritise where to spend. Making choices under constraint is a rewarding practice for kids. So, set limits on how much you can spend on their birthday gift or a pair of shoes, what the budget is for their birthday party, and let them do their own prioritisation. It teaches them about money, and having the ability to make thoughtful decisions under limitations is an advantageous life skill.

Safety first

While hard data for India is difficult to find on this topic, a 2021 Javelin Strategy & Research report found that one in 50 children became victims of identity theft in the US, leading to financial loss. And that brings me to the crucial matter of self-protection. Children and the elderly are especially vulnerable to financial crimes and cyber fraud. This is the non-negotiable part of the money discussion at home. Safe practices, being alert to suspicious requests, mandatory checking with elders if they receive one, and not sharing pins and passwords, should be part of your clear instructions. In fact, for kids under 13, I strongly recommend that any transaction, be it giving or receiving, must be done with the knowledge of a parent.

I started this article talking about how effective communication is the key to talking about money. How about throwing this ball in their court as well? Get them to start talking. Why do they think a particular purchase is important? Do they have any thoughts on the prices of various things in the market? Why do they think there is a wide variation in the prices of different cars? Why does it happen? Articulation brings clarity. And as they grow up, this clarity will manifest in their money decisions.

— As told to Neha Bhayana