Tips to teach your child to save money
Every year, one day in April is designated as “Teach Children to Save Day.” This day, April 22, 2021, is all about helping kids become smart about money from an early age. But if you have kids in your life, every day should be devoted to that. In fact, the month of April is dedicated to financial literacy, encouraging people of all ages to grow their knowledge and practices of good money management skills.
Saving money is a habit that can take time to build. Some adults have yet to master it. As of November 2020, 63% of Americans were living paycheck to paycheck, with no savings set aside to cover emergency expenses. Granted, this has been a particularly difficult year for many people to save. However, it helps to go over the lessons and help your kids learn the skill in good times and bad. With this in mind, let’s consider several actions you can take to get your kids — and perhaps yourself — on a saving trend.
Discuss Wants vs. Needs — A first step in teaching kids the value of saving is to help them distinguish between wants and needs. Needs include the basics, such as food, shelter, basic clothing, healthcare, and education. Wants are all the extras like snack foods, movie rentals and designer sneakers, a bicycle or the latest smartphone. Use your own budget as an example to illustrate how wants must take a back seat to needs in terms of spending.
Let Them Earn Their Own Money — Some parents said pay their children an allowance weekly or monthly, often linked to household chores. Allowing children to earn and save money provides them with the opportunity to learn how to use it. When an allowance is offered in exchange for chores, children also learning the value of their hard work.
Set Savings Goals — To a kid, being told to save without explaining why may seem pointless. Helping children define a savings goal can be a better way to get them motivated. Help them break down their goals into manageable steps. Help them plan how many dollars per week to save and how many weeks to reach their goal.
Provide a Place to Save — Once your children have a savings goal in mind, they’ll need a place to stash their cash. For younger kids, this may be a piggy bank. Older kids may want help to set up with their own checking or savings account at a bank. It’s a great money skill to establish a relationship with a local bank and to learn to manage their own account.
Have Them Track Spending — Part of being a better saver means knowing where your money is going. As children begin to spend and manage their own money, have them write down their purchases each day. Then at the end of the week, have them add up their spending. It can be an eye-opening experience. Encourage them to think about how they’re spending money and how much faster they could reach their savings goal if they were to change their spending patterns.
Offer Savings Incentives — One of the reasons people save in their employer’s retirement plan is the company matching contribution. After all, who doesn’t like free money? If you’re having trouble motivating your kids to save, you can use that same principle to ramp up their efforts. You could offer to match a percentage of what they have saved. Or you could offer a reward when your kid reaches a savings milestone, such as a $20 bonus for hitting the halfway mark.
Leave Room for Mistakes — Part of putting kids in control of their own money is letting them learn from their blunders. It’s tempting to step in and steer kids away from a potentially costly mistake. But, it may be better to use that mistake as a teachable moment. They’ll know in the future what not to do with their cash.
Act as Their Creditor — One of the basic tenets of saving is to not live beyond your means. If your child has something they want to buy and is being impatient about saving for it, becoming your kid’s creditor can help to teach a valuable lesson about saving. Say your child wants to purchase something that costs $100. You could “lend” the money and require payment from the allowance you provide, with interest. The lesson you want to teach is that saving may mean delaying gratification longer, but the item you want to buy will end up costing less if you wait.
Talk About Money — In the 2020 T. Rowe Price survey, 40% of parents said they’d never talked to their children about the stock market and 32% never discussed saving for retirement. If you want kids to learn about saving, it must be an ongoing discussion. Whether you schedule a regular weekly check-in to talk about money or make money chats part of your daily round, the key is to keep the conversation going.
Set a Good Example — In the same T. Rowe Price survey, 23% of parents said they had zero savings for retirement, emergencies, college, or other financial goals. If you want your children to become savers, being one yourself can help. Getting your emergency fund in shape, opening a 529 savings account, or simply increasing your 401(k) plan contributions are all steps you can take to encourage saving as a family. You could also decide to save for something together, such as a big-screen TV or a family vacation.
Teach Children to Save Day only comes once a year, but there are lessons to be learned, for parents and kids alike, all year long. If you’re a parent, making saving a regular part of your child’s routine can lay the foundation for a bright financial future. The tips outlined here are a good place to start.
