A Complete Guide on Child Financial Planning
Every parent understands that inculcating the saving habit in kids is very important. But when should one begin? While this decision completely depends on your parenting style, you should try teaching them to save as early in their lives as possible; maybe as soon as they begin earning an allowance.
To make your teaching more practical, here’s an idea – gift them a gullak! Yes, we're talking about a piggybank, similar to the one your parents had gifted you. Now, this isn't a new practice and if you ask your parents we're sure they'll tell you all about the gullak they had. But you can introduce this gullak in your kid's life for more than just encouraging them to collect coins. A gullak can act as a great medium for you to teach your kids the importance of financial planning from an early age. And your kids too will enjoy this activity as they'll watch the money grow right in front of them. Not sure how a gullak is going to help? Here are some financial planning lessons you can teach your kids with the help of an ordinary piggy bank:
- The value of saving
Firstly, your kids need to understand why you are encouraging them to save. Once kids start getting an allowance they mostly focus on buying candy, video games, and such stuff. You should teach them how to smartly spend their money on things they will actually use instead of splurging on chocolates and ice creams. Teach them how to curb the urge to spend and save for something bigger and better.
- Early investment steps
Once your kids start saving some money in their piggy bank, introduce them to the concept of investing. You can do this by explaining to them that when they put money in their piggy bank it stays there but doesn’t grow. But if they invest it instead, they will earn interest on it. To teach this with the example of the piggy bank, you could encourage them to give you some of their saved money for safekeeping. Every month you can give them a certain percentage as the interest they earn.
- Simple and compound interest
Once your kids have saved a decent amount in their piggy bank, teach them the concept of simple and compound interest. For example, based on how much money they have left in their gullak at the end of every month, you can add a certain amount to the kitty as simple interest. You can also familiarise them with the power of compounding by rewarding them on a quarterly or a biannual basis.
- Goal-oriented investments
Assume your kid’s birthday is six months away. Being the excited beings they are, kids always plan well ahead for their birthday parties. You can use this situation as an opportunity to teach your kids about goal-oriented investments. Suppose their goal is to have a pizza party and go to a movie with friends, explain how they can put in more money for the next six months in their piggy bank so that they have enough to spend on their birthday.
Like we said earlier, gifting a gullak to your child is not just about teaching them to save money. When they have a piggy bank, they can actually see all the money they have been saving. Instead of it just being a hypothetical situation where you lecture them on why investment is important when they see money growing right in front of them they are bound to learn better.
These lessons with the help of a gullak involve a small amount of money. Gradually let your kids understand how the same concepts can be applied to a bank account. You can start by telling your kids how their money can be kept safe in a bank. Once they understand these things a little more and their interest peaks, open a bank account for them.
One such bank account made specifically for kids is the Kids Advantage Account from HDFC Bank. Apart from teaching your kids the importance of saving, this account also offers a free education insurance cover. You can even get a debit card issued for your kids. Go for it today!
Looking to apply for an HDFC Bank Kids Advantage Account? Click here to get started!
Know more about the different types of Savings Account.
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