Saving or just not spending - learning how to be frugal
Kids want what their friends have, and they want it now, or at least sometime soon. So how can parents teach children to look for a bargain, wait before buying and get the best deal rather than the first deal?
Financial frugality and money management
A new digital pocket money management tool designed specifically for Australian families helps teach financial literacy and frugal money management for children and teenagers. ZAAP is a family- friendly app that provides all the digital smarts for parents to give pocket money and keep an eye on how children are saving and spending.
ZAAP App gives parents control and kids’ responsibility
Parents using the ZAAP App find it gives them the control of knowing how their children are spending their pocket money as well as helping children how to save and be frugal with their money, as they learn to be prepared for future independent money management.
Learning the difference between needs and wants
Frugal habits are learned, and parents can model careful spending with their own behaviour when shopping or talking with children about the difference between ‘needs’ and ‘wants’. Before they bring out their prepaid ZAAP Card or Tap & Pay with their ZAAP Band anywhere Mastercard is accepted, encourage them to ask the question - ‘Is this something I need, or something I don’t really need but just want?’ Get them into the habit of thinking about what they spend on the things they need and truly value.
No regrets - 4 Rules for buying
Try these fun rules to help your children learn how to control their urge to splurge on the impulse buy. Peer pressure can be a strong driver for your teens to purchase the latest game app or video. Learning how ‘not to spend’ or at least wait a while before committing to purchase is the key to being able to save for the future.
- The Sleep on it Rule: Encourage kids to ‘sleep on it’. Put at least one night between what they want to buy and the actual purchase. They may feel differently in the morning.
Ideally, money managers suggest waiting 48 hours before committing to a major purchase, but to young people this may seem too long to wait, or it may mean losing the opportunity to buy at a reduced price. Encourage the habit of waiting so children learn to control impulse buys.
- The Need or Want Rule: Asking ‘Do I really need this?’ before any major purchase is a great question to encourage frugality. Sometimes the honest answer will be ‘No, I don’t really need it, but I want it.’ Help children to recognise the difference.
In economics, the definition of a ‘need’ is something required to survive, such as food, water and shelter. A ‘want’ is simply something that people would like to have.
Help your children work out what is important to them and encourage them to think about the difference between needs and wants because they can often be confused. Children can easily find a way to justify a ‘want’ by seeing it as a ‘need’.
- Grandpa’s Rule: Save 10 percent of everything you make. Billionaire investor Warren Buffett is quoted as saying, “Do not save what is left after spending; instead spend what is left after saving.”
Sounds simple, but it requires self-control. With ZAAP you can use technology to help achieve savings by setting up pocket money funds to automatically transfer into savings.
- The Rule of 72: Saving their pocket money for future use can seem as though the money is hidden away where it can’t be seen. The ZAAP App lets kids see their savings on screen and to encourage them you can demonstrate how the magic of compounding interest will increase their savings – just by not spending the money.
To approximate how many years are required to double the value of their money, divide the current interest rate into 72: a 3 percent return takes about 24 years; 6 percent, 12 years; and so on. Making regular deposits into savings means their balance will increase quicker.
Being frugal is not being cheap. Learning cost-consciousness is a benefit in helping young people manage their money in the future.
For big-ticket items, put it in writing
For big-ticket items that your teenagers will inevitably want at some stage, or for the purchase of something you don’t think is good value, try coaching them to create a written proposal.
They can articulate the reasons they want to spend their money, give you explanations and even include conditions they know will sweeten the deal for you. Once their thoughts are on paper (or in an email) you can apply the 48-hour rule and discuss their proposal. Approved or not, the experience is great practice for the real world!
Get the ZAAP App for money management
To find out more about the ZAAP App and how you can use it to educate children on money management, visit the website at zaap.com.au.
Get ZAAP now click here.