The most important thing at the beginning is to make saving fun. Plus, the earlier you start teaching your children to save money, the better off they’ll be. Even toddlers can do it, but you have to teach this concept in a way they’ll understand. Then, as your children grow, you can introduce more sophisticated saving strategies.
Here are a few ideas to teach your children to save money at any age.
Making Saving Fun for Young Children
For toddlers, don’t use money at first, just use a reward system to introduce the concept of units of value. For example, you could create a reward system for watching TV based off of coupons. The child could earn “coupons” that could be exchanged for TV time and label each of your DVDs with the number of coupons he needs to watch them.
The short episodes of “Peppa Pig,” for example, require one coupon, while the longer “Frozen” movie requires four. Pretty soon, he catches on that if he wants to watch a longer movie, he needs to save his coupons. Then, when you start paying him an allowance around the age of five, your child will more easily understand that he can spend and save his money like he could his coupons.
When it comes to learning concepts like saving, visuals and physical interaction are important, especially for young children. With that in mind, here are a few ideas to teach your child how to save:
- Use Different Envelopes/Jars
You may be familiar with the envelope budgeting system for your own money, but this can also work for children. On either envelopes or jars, have your child draw pictures of what he or she wants. You may also want to help your child understand that some items will take longer than others to save for.
For example, the short-term savings container might have a picture of a specific toy, while the long-term container might have a picture of a trip to Disneyland. Teach your child to set aside money for short-term and long-term goals, and have another container or envelope for spending on everyday items.
- Make a Savings Goal Chart
Once you know what your child wants to save for, figure out how many weeks it will take and make a chart. You can represent each week with a box and your child can put a sticker in that box once the money from that week’s allowance is set aside.
For example you could put a picture of the Transformer toy he wants on the chart. Figure out how many weeks of allowance it would take to save up. Every time he receives his allowance, he could divvy up his money and put a sticker in a square. This way, he could see himself getting closer and closer to his goal.
- Offer Rewards for Saving Money
Consider rewarding your child for saving his or her money. Much like my credit union, which offers t-shirts and other prizes, you can offer prizes to your children.
For example, if your child doesn’t spend any money for a certain amount of time, provide a small reward or treat. You can also make the prizes better the longer your child saves. Try stickers, an extra 1/2 hour of video games, toys, or whatever motivates your child.
- Set a Good Example
One of the best things you can do is let your child see that you save money, too. Put money in a jar while your child is watching and tell him or her it’s your savings jar. This will show your child that saving is “normal.” Plus, since most young children want to be like their parents, seeing you do it will provide them with money lessons that further inspire them to save.
- Match Your Child’s Contributions
A “savings match” can be a great way to encourage your child to save extra money and get an early peek at the benefits of a company match for a retirement savings program like the 401(k). While you may have a standard amount your child is required to set aside from his allowance, if he chooses to save more, you could match it.
Helping Older Kids Practice Saving
As your child gets older, a goal chart may be less inspiring, and drawing pictures on an envelope tends to lose some of its charm. However, you can still set an example of saving and you can still match your child’s contributions. Plus, it’s always a good idea to have different envelopes, jars, or accounts for different purposes.
As your child grows, here are a few more ideas to teach him or her about saving:
- Open a High Yield Savings Account
When your child is old enough to understand the concept of interest, you can look for savings accounts that earn interest. Help your child open a high yield account online and explain the importance of compound interest. Ally Bank and Capital One 360 are good options.
- Help Your Child Prioritize
Have an older child write out a wish list of things he or she wants to spend money on and prioritize that list. Ask your child to think long-term as well. How about a nice laptop for college, a graduation trip to Europe, or even the down payment for a house someday?
Then, have your child allocate an amount of their allowance, or “income,” to each goal. These are the beginnings of a financial plan and this type of thinking will serve your child well in the long run.
- Let Your Child Make Mistakes
Sometimes the best lesson comes from a poor decision, especially when your child is young and the financial loss won’t be so great.
Imagine a child getting his birthday or Christmas money, rushing out and spending it without thinking. After spending most of it, he may realize that he didn’t have enough to get the expensive video game he wanted. He wished he had thought about it first before he spent it. But now, he learns from that mistake and he saves up for the things he really wants and thinks before he spends. Giving him money to fix his mistake because you feel bad for him erases the entire lesson that he would have learned from this situation. If you think you feel bad for your child who blew $50 on a toy he didn’t need and could barely afford, wait til he blows $50,000 on a car he doesn’t need and can barely afford. It is much better to let the child fail now while the stakes are low and learn from that failure so that he makes better decisions as an adult with the stakes are higher.
- Play Games
There are a number of games available to teach financial concepts to children. Monopoly and The Game of Life, for example, can teach money management skills as well as the importance of planning ahead. Rich Dad Cashflow for Kids is another good option focused on money management.
In addition to classic games related to money that you can use as family game night ideas, there are a number of online games as well such as Rich Kid Smart Kid.
- Talk About Money
While you may not want to discuss your salary in front of your children, you may want to let them hear you discuss your financial plan and the arrangements you’re making for retirement, for example. This could simply be having a conversation with your spouse while your children are in the room. In this way, your children can understand that saving is a lifelong endeavor.
- Look for Good Deals with Your Children
One of the keys to saving money is looking for deals on purchases. When your child sees a book he wants at the grocery store, suggest that you go home and look online for a better price. Together, you can compare prices on different websites and even considered purchasing the book used.
Teaching your children how to save is an important step to prepare them for financial responsibility and a secure future. But it won’t go very far if you don’t “practice what you preach” and save for the future yourself. Whether we like it or not, most of us take after our parents and emulate the habits we observed in them during childhood. In other words, you need to act how you want your children to act when they grow up.