The skill to save and grow money is one of the most useful basic skills that allows people to cope well in life. Money wisdom—like foreign languages—is easier to acquire at an early age. As financial skills are not yet part of the Estonian school curriculum, responsibility falls to the parents.
Luminor’s Growth Manager Kristiina Männi tells us about the financial skills and wisdom that children should be taught at home.
Teach your child to save money
In addition to the everyday needs related to costs, we all wish to have something bigger and must save money in order to get it. Saving and sticking to a budget is never easy, no matter how old you are. Therefore, it pays to learn and practice saving at an early age.
When a child wants a new toy, prepare a realistic savings plan in which the child also has a role: for example, they can regularly save sums from their pocket money. The other option is to agree on a housework chore for which the child will get money for their piggy bank.
Regular pocket money is an excellent opportunity for teaching your child the value of money and how to save it. You can give your child pocket money in cash or by transferring it to their current account, which you can open for a child as young as seven. Even if your child sometimes spends their pocket money quickly and thereby postpones the achievement of the goal for which they’re saving, it is also an important lesson: they gain a new experience and are smarter next time.
As your child is saving money, encourage them to keep an expense diary, where they can write down all the outgoings they make from their personal savings. This diary helps them get an overview of their monthly spending and analyse how they could save more.
Grow your savings together
In addition to saving for a certain purchase, your child could also learn to invest their money. Like saving, investing also promotes determination and planning skills.
You can give your child their first investment lessons with a simple exercise: if they manage to keep their pocket money until the date x, then you will give them an additional amount of x, but if they keep their pocket money for another five days, the extra amount they get will be x + y.
If you’re planning to open a savings account for your child, include them in the process as well. For example, agree with your child that you will increase their pocket money if a certain percentage of it will go to the savings deposit every month where it can grow for the child’s future. After some time, take a look at how much money has been saved in the deposit and make a plan for whether and when to increase the payments into the deposit.
Encourage your child to be enterprising
Children are enterprising and imaginative by nature – these are traits that deserve to be developed further! Encourage your child to come up with their own good solutions for earning money.
- For example, if they’re good at making lemonade, open a lemonade stall during the next community event. Let the child be the boss, and act as a mentor and supporter yourself.
- If your child likes to sew or crochet, register as a participant in a crafts fair or create a profile for your child in the international crafts portal Etsy, where you can sell the things your child has made.
A good teacher sets an example
Do you set long-term goals, stick to your savings plans and invest in the future? If you think that you have room for development, practice with your child. Setting common financial goals and sticking to them allows you as a family to work as a team and support each other. Make an agreement in which each family member has a role, and make sure that everyone sticks to the agreement. For example, your joint goal could be saving money in the child’s independence fund. Check once a month that everyone – including the child – contributes to the fund as much as agreed.
At the same time, you can also set yourself a long-term goal with which you can be a role model for your child. Here, the child can check that you stick to the goal you have set.
One of the most important financial duties of an adult is to think through their pension plan and set themselves a long-term goal that complies with this. What is the monthly amount you need to maintain your quality of life? What are your present savings and how much more should you save in order to achieve your pension goal?
Education with future benefits
Although financial education at home requires patience and commitment from parents, its benefits are noticeable and long-lasting: if you include your child in the discussions and activities related to their money, it will teach them about the entire economic system and show them how to plan their own future.