Here’s how you can help kids to become prudent spenders and diligent savers

Piggy banks find their origins in ancient times when housewives used rustic containers made of soil to safekeep their savings. These were fondly called Piggy jars and the name stuck even when soil was replaced by wood, metal and plastic, and the notion of a bank came into being. Although there is no known co-relation between pigs and saving habits, there is a lot of sense in the habit of piggy banks which helps kids appreciate the significance of savings, an invaluable learning that pays rich dividends throughout their lives.

In contemporary times, our children find umpteen avenues of instant gratification at the click of a button – from pizza and cola to fancy gadgets and video games. At the same time, they are exposed to the perils of digital influence and plastic money at a very young age which is why they are unable to appreciate the time value of money as also its four vital functions – medium, measure, standard, and store.

It is extremely important that we revive the fast fading habit of piggy banks to help our children piggyback on it to build a strong foundation of financial literacy in their formative years. The piggy bank habit will help children comprehend the value of money at their own pace, amid other chores like homework, exams, tuitions and recreation.

Thankfully, there are many innovative ways of ensuring a strong foundation without being unduly preachy such that children develop good savings habits the fun way.

Here is a suggested roadmap

> Gift them with a piggy bank and encourage them to put all their gift monies received from relatives or cash prizes won at school and other competitions into it at regular intervals. This will help them that money earned is not for spending alone, it must be saved too to help them become financially stronger.

> Tell them to take a count of the saved money from time to time. They must learn that saving, just like earning and spending, is a matter of celebration too.

> Link the piggy bank savings with some attractive target – like buying a toy, apparel, device or anything they crave for. This will help them acknowledge the importance of goal-based savings and the need to stay focused to achieve every goal.

> Once they become disciplined about maintaining their piggy banks, introduce the concept of short term goals and long term goals by giving them piggy banks of different colours to store money under the two heads. Say, red box money can be used for some immediate target like buying a book or a toy; while a green box could be used for some long term target like buying a laptop or cell phone.

> Add a few rupees or coins of your own to the green box at periodic intervals to simulate the interest that the bank pays on the deposit. This gesture will help them appreciate the fact that money kept in the bank grows over time (green box), unlike money kept at home (red box). This will be their first tryst with the concept of banking.

As they move up the value chain of piggy banking habits, explain the virtues of good financial management by teaching them:

> How to spend wisely by distinguishing the key difference between needs and wants. Let them know that a need is something that should be met for our own good like nutritious food, good clothes, quality shoes, convenient transport facility, study material, tuition costs and the like. Wants, on the other hand, are fancy things that are nice to have but not a must-have, like the latest trending computer games, swanky phones, frequent hoteling, and fast food. Wants can be satisfied once in a while but one must not be reckless about them. If wants take precedence over needs, it is a tell-tale sign of gross financial mismanagement. Children are fast learners and once they know why they must spend wisely, they will be focused on needs ahead of wants all their lives.

> How to draw a simple budget of projected income and expenses and track it over a period of time to check if income exceeds expenses or is it the other way round. If it is the latter, they can take corrective action and get back on track. This habit will help them maintain smart financial diaries to manage their monies as they grow up.

> How to keep borrowings in check by distinguishing between good debt and bad debt. Good debt typically funds those needs that we can’t afford like a new home, higher education, or a utility appliance. Bad debt on the other hand are those loans that we neither need immediately, nor can we afford to spend on them like exotic vacations, high-end cars, premium entertainment options like home theatre, or other fancy purchases. Teach your children about the need to borrow wisely with proper thought to the interest burden that comes with the debt. They should know from an early age that if we borrow without rhyme or reason, we will only cause ourselves a lot of sorrow. Later in life, when they set about managing their personal and professional affairs, this learning will keep your children away from the perils of debt trap or excessive credit card transactions.

> How it is important to know that savings alone don’t help us deal with all our needs as it can’t beat inflation which make things costly over time. Inflation can be explained to children using a simple example. Say, they want to buy a tiffin box which costs Rs. 100. So, they save money in their piggy bank to buy it in a year’s time. But by then, the same box costs Rs. 130. So to buy it now would need them to spend Rs. 30 extra. This ‘extra’ is nothing but inflation.

> Teach them in simple language that money grows over time but for that to happen, we need to invest money in appropriate instruments like stocks, bonds, commodities, real estate and other avenues that can help us grow our money. Investments help us beat inflation and build wealth over time.

Contrary to popular perception, young children can easily appreciate the essence and significance of savings and investments provided they are taught broad concepts using examples from day to day life without the use of intimidating jargon and intricate calculations. The piggy bank-led financial literacy will go a long way in helping your children secure a bright financial future when they set about chasing their dreams and aspirations in the vocations of their choice and expertise. So, it is time to help them piggyback on the piggy bank habit as early as possible.

Happy piggy banking!

(The writer is head-product & digital initiatives at YES Securities, views expressed are personal)