Saving

Teaching Your Kids About Saving

(Marit & Toomas Hinnosaar)

When it comes to financial success, there are two routes to take: maximizing income and/or minimizing expenses. Your kids probably know all about maximizing income – it’s glamorous, exciting, and embodied in every story about Bill Gates or Oprah Winfrey. But minimizing expenses – also known as saving – often gets overlooked.

Here’s how to get your kids interested in saving:

Save Money Yourself

As with other things, kids tend to absorb many of their beliefs and habits about money from their parents. Maureen Healy of Psychology Today writes:

“Children are incredibly perceptive. They pick up your spoken and unspoken cues about money too. Even if you think they are not “listening in” to your adult conversation about the mortgage, credit cards, tuition and medical costs – they are likely paying attention. I promise.”

Therefore, far more important than any lecture or “saving sermon” you offer is whether you visibly save money yourself. If you preach saving while blowing all of your own money, your child may decide that saving is not truly important after all. Instead, make sure your child sees you saving money – not once in a while or for specific occasions, but as a matter of routine, weekly principle.

Explain The Importance of Saving

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While lectures alone may not get your kids to save, they certainly have their place. The key to making your kids believe in saving is to put it in terms they can understand. Remember that your child (especially younger ones) has never held a job, paid a bill, or had a major purchase to save up for. Therefore, rather than talking about adult savings goals like cars or homes, discuss simpler things, such as the new toy or video game they’ve been asking for. If they have a birthday coming up, suggest that perhaps half of it should be tucked away.

If your child is a bit older or is already working, feel free to use more mature explanations. Explain that people who live paycheck to paycheck are usually unhappy with their lives – and give examples, if possible.

Use positive motivation, too. Sit down with a calculator and plot out how much money your child could save towards a car by putting just one-third of each paycheck away. Exercises like these will help establish a mentality of saving (and of contemplating what to do with money before spending it.)

Connect Saving With Tangible Rewards

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It also helps to connect saving money with tangible rewards. If you are trying to get your 10-year-old son to save $100 of his birthday money, he probably will not be very excited about it. Rather than seeing it as $100 toward something better later on, he may (due to immaturity) think only of what he cannot buy today. And despite your best intentions, even the most brilliantly argued lecture may not do much to change that.

That’s why it often pays to reward your kids for saving. Be careful though: if the reward is too excessive, the bigger lesson could be lost. A trip to Disney World, for example, is more likely to overwhelm your child than make him see the value of a dollar. Think smaller:

  • Going out to eat at his favorite restaurant
  • Extending his curfew for a few nights
  • Matching the amount of money he saved

Also, keep in mind that you do not want to do this forever. Instead, think of these rewards as a “bridge” to when they become naturally motivated. Once they successfully save for something they really want, that should inspire them to keep doing it.

Open a Savings Account Together

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Don’t spend so much time talking about saving that you lose sight of actually doing it. Once your child has seen you saving and understands why they should save, go to the bank together and open an account. Most banks offer free savings accounts to children, and having a real account with their name on it will help solidify how “grown up” your child is acting.

Conversely, leaving the money in an envelope on top of the refrigerator may prompt him to think he should just spend it now.

“Savings Or Bust”

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Finally, there is much to be said for instilling in your child the belief that he must save to get what he wants. Many parents, anxious to give their kids more than they had, simply hand their children whatever they want. This is frequently seen on sixteenth birthdays, when teenagers are given the family car for no other reason than reaching driving age. Is it any surprise that such children see no reason to save? Why should they, when everything they have ever wanted was effortlessly handed to them?

The alternative is making it clear from an early age that stuff (whatever that may be) comes from working hard and saving. Tell your child that he can buy whatever he wants – if he or she can find a way to pay for it. Or pay for a part of it, if it is a large purchase that you don’t mind helping with (such as a car.) The point is to not coldly say “No” to your kids, but to make them view savings as an unavoidable step to getting ahead.