Financial independence is not just being able to spend whenever one wants to; it also means being able to save and invest in the way one wants to.
By TV Raman
While some Children may start saving money without knowing the importance of financial planning, it is something that can be instilled in all children in the early days of their life. While the role played by financial intelligence and financial literacy is extremely important, the core values relating to ‘save each drop’ leave a lasting impact on the behavioural aspects of financial decision-making.
Save and invest
Financial independence is not just being able to spend whenever one wants to; it also means being able to save and invest in the way one wants to. Financial independence, along with consistent savings and limited spending, is the road to wealth creation. As Brian Koslow rightfully said, “the very first step to building wealth is to spend less than you make”. Hence, teaching children to save more than what they spend is the most accurate way to create a pool of funds for their future.
Savings must come with peace of mind. Saving money, even in small amounts, consistently for a long period of time helps people to feel confident and overcome any financial shocks. Small savings not only create a habit among individuals to recognize the need for regular savings; it also helps people to come out of their comfort zone, plan their necessary expenses, and avoid unnecessary expenditures.
Investments may require better long-term planning and understanding of the various investment avenues, but practical lessons on savings can begin at home with recording of expenses, estimating monthly budget, minimising spending, setting up saving goals, deciding on financial priorities, and keeping track of how the savings are growing.
Money-saving hacks
Encouraging little children towards various money-saving hacks should be their initial exposure towards savings. Discussions on the tips and techniques of financial planning and understanding concepts such as needs vs wants, barter exchange, budgeting, contentment and giving can be done.
The most important factor that has a significant impact on the quantity of savings is budgeting. Children, in their pursuit of instant happiness, tend to overlook the importance of spending as per the money in their hand, and that is where budgeting helps.
The principles of financial management and planning need to be instilled in children from the early days of their childhood. Toddlers, children, and teenagers can therefore be introduced to various financial exercises as per their age. Toddlers and kindergarten kids, for instance, can be involved in basic financial behaviours such as counting and barter exchange. Children as young as first to fifth graders can learn the value of earning money, saving from pocket money and monetary prizes for good academic performances. Sixth to eight graders can learn the concept of income, planning an expenditure, and contentment and charity. High schoolers and teenagersare old enough to engage in zero balance personal accounts, low fee credit cards, and paid summer internships.
Becoming financially secure and learning how to handle money is a lifetime process. The earlier we teach the younger generation good financial skills and habits, the more likely they are to succeed in their quest for financial independence and well-being as adults.
The writer is professor and head, Department of Accounting & Finance, Amity Business School, AUUP.