As you teach your kids financial literacy, it is also essential that you teach them that they can grow their money. Money isn’t just meant to be earned and spent, but to be saved and invested too, so that you can get more money in the end. This is where you teach your kids about banks, saving, interest, and investments. What are the simplest ways to explain these seemingly complex financial concepts?
- Piggy Banks: teaching your kids to save up for something in the future is a good way to introduce them to the concept of saving in the bank. To make it very simple, a bank is a place where you put your money to be saved. In turn, the bank puts in a little money over a certain period of time because you have saved your money with them. A practical way to illustrate this is using a piggy bank. The piggy bank is your bank, and you have saved your money in it.
- Interest: interest is the little money that the bank adds to your money that you have saved. So, you have saved N100 in your piggy bank. Every week, 10% of the money will be added to the money in the bank: 10% of N100 is N10. So every week, N10 will be added to your savings in the bank. This N10 is called interest. The longer you save, the more money you have. You can get out the money every week to count it, so that your kids can see how the money is growing. This type of interest is called simple interest.
- Compound Interest: while compound interest seems to be more in line with taking loans from the bank, it wouldn’t hurt to teach your children about it. So, your child has N100 in the bank. At the end of the week, you put in N10, so the money is now N110. At the end of the second week, you add 10% of N110, which is N11. Now the money in the bank is N121. At the end of the third week, you add 10% of N121, which is approximately N12. Now the money in the bank is N131. This is how compound interest works: you get interest on the total amount of money in the bank at any given time.
- Investment: teaching kids about investments helps them develop an entrepreneurial spirit, and a head for business. So, in teaching your kids about investments, you could say: kids at school keep misplacing their sharpeners, and they always have pencils that need sharpening. So, you take some money and buy a sharpener, and you charge your school mates N10 per pencil sharpened. The money you used to buy the sharpener is the investment: the money you get from your school mates to sharpen their pencils is your profit. Over a period of time, you will realize that you have doubled your investment, and you can decide to invest in a second sharpener so that you can have more financial returns.
These are simple ways you can teach your kids about the power of growth. With more knowledge and understanding of financial literacy, you wouldn’t have to worry about your kids’ financial security, or their ability to manage money, as they grow older.