Teaching Kids Good Savings Habits

Starting Early Is The Key

TKGS-headLet’s be honest: there are many grownups that have problems saving money. But many of them might have a better handle on it if they had been taught some key savings skills when they were kids. So with “Teach Children to Save” day this Friday (April 24) here are a few ways to teach children good habits when it comes to saving.

Start with the basics

The first thing is to decide if your child will get an allowance and, if so, how much it will be, using your budget and their age as a guide. Younger kids often view even a few dollars as a fortune due to being unfamiliar with the value of most items, but older kids might need a bit more—just use your best judgment. Also keep in mind that an allowance shouldn’t be based on chores or doing things around the house. Those should be opportunities to earn a bit more, kind of like overtime pay.

Once they have some money, you can focus on teaching them the difference between a “want” and a “need.” Perhaps give them different change jars for them to put their money into: one for needs (maybe they can chip in for school supplies) and one for wants. You can even do a third for “donations” to a charity of some sort. This is also a good time to open up a savings account for them, as most banks have special accounts just for kids. The idea is to teach them the importance of “delayed gratification” by having them wait and save up for what they want rather than immediately taking it from their needs.

Something you do not want to do is tell them that you (or they) don’t have the money for something. Instead, tell them you don’t have the money right now but will instead need to save and budget for it. This way they realize they can still get what they want—they just need to be patient (something that some adults even struggle with, so this is yet another chance to teach it to your kids early). Remember that your attitudes about saving will most likely be the same ones your kids develop, so try to set the best example you can.

Get more detailed

As your kids get a bit older, have them develop a specific savings plan. It could be a fixed dollar amount into savings each allowance period, or a sliding scale that changes depending on their current needs or wants. This is also a good age to include your kids in your family’s financial plan.

A way to involve the kids is to have them create a grocery budget, take them to the store with you, and let them do the shopping to see how they do. If they overspend, show them how—did they get something they wanted instead of something they needed? Did they not use coupons? Or did they simply underestimate the costs? If they underspend, give them kudos and save that money for the next time or put it into a savings account. This has the benefit of also teaching how much certain items costs, which gives them a better idea of how to create a realistic budget.

Getting to the nitty gritty

High school is the time when kids have a much better grasp of what things cost, the ability to earn their own money, and a lot more needs and wants. While you certainly don’t want to wait until now to start teaching them good savings habits, now is perhaps the time when those lessons can truly start to sink in and have an impact.

If they have a job, they should divide their money into savings for things they need (new shoes, insurance for a car if they have one, etc.), for something long term (college, a car if they haven’t gotten one yet, etc.) and even wants (perhaps an upgraded cellphone or new MP3 player). You can also encourage them to save by offering to match a certain percentage or amount, much like some companies do with retirement plans. You could even go so far as to tell them the money you match isn’t fully vested (e.g., theirs to keep forever) unless they meet certain goals, such as a certain dollar amount saved or even better grades—again, much like many retirement plans. The whole idea is to make it realistic and get them ready for their next, more independent stage of life.

No matter how you teach your kids to save, the important thing is that you do it! The time you spend now just might save your children a wealth of time and headaches many years down the road.


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