Is buying a small swimming pool for children to swim in within the confines of the home considered extravagance and a waste of water?

The criterion for extravagance (israf) and squandering (tabdhir) is spending on what is inappropriate, or spending on what is appropriate but in excess of what is needed. Having a swimming pool at home to teach children how to swim is a permissible benefit and a valid objective for strengthening their bodies, maintaining their physical health, and acquiring skills. There is no extravagance or squandering in that.