09.22.2009 / Tips for Teaching Kids to Save
No matter what age your child is, teaching your kids about saving and spending wisely is one of the most important jobs you have as a parent. Why? Because setting the stage for good money management is about forming good habits. According to the American Bankers Association, children develop spending habits before saving habits. That's why it's so important that you start teaching your child the importance of saving, because when they choose to save at a young age, it will become part of their future routine.
"Teaching your kids about saving and spending wisely is one of the most important jobs you have as a parent."
We've asked our savings experts here at FNBO for their suggestions on ways to help teach children the importance of savings, plus age-appropriate tips.
You don't have to be a financial guru to teach your children about saving money. Pick up a good book, ask your bank about their youth savings programs or take a family finance class together. If you think your kids will learn about savings and money in school- you're wrong. They learn by example, and they'll pick up their habits from watching you.
The Allowance Debate
Allowances are a big topic when it comes to financial literacy for kids. Some parents think allowances teach children about earning by doing chores and work around the house. Other parents say that allowances shouldn't be tied to chores, because taking care of a home is simply part of being a family. Either way, it's up to you to decide what's right for your children.
Divide it Up
However you decide to go on the allowance debate, have your child set up a system for allocating money when they get it (even $5 from Grandma and Grandpa). For example, have them allocate 50 percent for spending, 30 percent for savings (or more if possible), 10 percent for charity and 10 percent for investing. You can vary the proportions however you want, but do stress the importance of saving for the future and show them early how the money they save will grow.
Let Them Make Mistakes
While you will find there are times when you want to step in and save your kids from spending their money, let your child make mistakes. It will be easier and less expensive for them to make a mistake now than in the future. For example, that $10 junk toy that they saved up to buy that breaks in a week is a cheaper lesson than a bad car purchase in the future. Making small mistakes when you're young keeps you from big mistakes later on.
Look for Teachable Moments
Have your child save receipts so he can see how much money he spends – and how quickly it disappears. Also, if your kid keeps their receipt they could potentially return the defective toy they purchased only last week. Open a bank account with them and review monthly statements together. Look at interest earned on their account and explain how their money will continue to grow if they keep putting it in their account. Toys come and go, but their savings account will be a constant, growing as they do.
- Under 4:
- Practice counting currency. Purchase a book that explains currency or you can even make your own paper money (avoid using real coins).
- 5 – 8 years:
- Take your child to open a savings account and start teaching them about the interest they are earning on their account.
- Work on concepts of making choices with their money. For example, "If we purchase this toy today, then we cannot go and get ice cream tonight". This will make them have to decide which is more important to them. Show them how much you spend on them that they don’t even realize (particularly with the older kids) can help them learn the value of objects.
- 9-12 years:
- Make your child contribute some of their allowance to purchase gifts for family members (Birthdays, Christmas, Holidays, etc). This will start to teach your child how to share their money and budget for upcoming events.
- Have your child sit with you when you are paying bills, whether online or just writing out checks. This will not only show them how much you pay for things, but will also get them thinking about the importance of saving for things they want in the future. For example, when they see you make your car payment and car insurance, explain that one day when they want their own car they will need to make payments too.
- Read the stock market report from the paper together. Or learn about stocks together.
- 13 and up:
- Stress the importance of working a part-time job to earn income. This will allow them to start saving and budgeting with a larger amount of money. (Plus, they might stop asking you for extra money all the time.)
-Start discussing the importance of savings for long-term, larger ticket items (car, school, etc.).
Do you have any tips for teaching children to save that have worked for you? We'd love for you to share your stories with us.