How to make children save money?

This post is in response to a topic raised by Ashwini, a member at our MoneyTalk India Finance Forum (MTIFF) who sought help how to cultivate a habit of saving in her brother who spends all his pocket money in no time and keeps asking for more money.
I thought about it a bit and here are some tips I could think of, which if used effectively can make youngsters understand the importance of savings.

Tip 1: Reward
Promise to contribute to the savings made by a child – If he/she saves 100 Rs by end of the month add Rs 100 from your side. This reward should encourage him to save more. (Downside: The child should not borrow from elsewhere and show as saving- opening a minor bank account in his name will be very good idea.

Tip 2: Online financial games:
There are some free games online using which one can do virtual trading. Teach him some basics of trading and introduce him to this game-it will be as good as trading in real market except that profit and loss will be virtual. Such games will make him understand the value of money and how markets operate. If he likes the game chances are he will develop a sense of respect towards money and its value?

Tip 3: Mandate book keeping
Insist that the child should give daily or weekly account of all expenditures. This will increase accountability and we’ll be able to identify what expenditures were avoidable, for what there were better alternatives etc and over a period of time it should be possible to improve the spending habit of the child.

Try 4: Running competition among siblings-
If there’re two or more children at home run a competition as to see who will save more. This should encourage them to cut unnecessary expenditure and try to save more.

Tip 5: Provide them with interesting alternative:
Suppose the child is insisting that he needs that overpriced remote control car which is unlikely to last beyond few weeks. Try to trade that money for more meaningful alternative- say I will take you to that amusement park this weekend instead of this toy, or why don’t you try this children laptop instead etc. This will show the child that there’re more meaningful and valuable things which can be secured for same price.

Tip 6: Attribute your success to savings-
Suppose you got a diwali bonus and you’re taking family for dinner-Instead of saying “I am taking you out because I got a bonus” say “I could take you out for this dinner because I have been saving Rs. 250 every month for this” This way a child will realize that small amount when accumulated over a period of time can be exchanged for bigger rewards.

Tip 7: Practice instead of preaching:
Children learn a lot by observing. Control your spending habit and make your child understand that you’re saving regularly for a better tomorrow. Do not indulge in excessive shopping or activities that involve flaunting your wealth. Be a role model by yourself and that should help a lot.

Tip 8: Never give a credit card to kids-
When there’s a need (say when he is staying at a hostel and may need to have some money of his own for emergency needs) stick with debit card. You can always transfer money to his account if there’s a genuine need to spend more.

Cross published on Mouthshut, Desicritics & Indimag

More tips: Saving money while fueling | Caution to be followed in supermarkets |Do travel sites really offer cheapest airfare?