Teaching children to save can feel like an uphill battle, but it’s a worthwhile fight. As soon as your kids are capable of understanding basic financial concepts, start putting these tips to good use. As they get older, you may introduce more nuanced concepts that reinforce these basic lessons.
1. Use a Sliding-Scale Allowance
Don’t wait until your kids reach legal working age to teach them the value of money. Provide a small weekly or monthly allowance whose value is tied to their age. If they’re capable, provide bonuses for completing household chores, yard work or other tasks. This reinforces the link between money and work at a young age and encourages basic financial planning.
2. Set Manageable Savings Goals
Once your kids have a reliable cash flow, encourage them to create a store of savings. Open a joint bank account and set a manageable savings goal: For instance, total withdrawals may never exceed 90 percent of total deposits. Whether they know it or not, this will encourage your kids to think about what they spend their money on and give them the satisfaction of watching their very own bank accounts grow.
3. Offer Reasonable Incentives
Following the steady upward trajectory of a bank account balance is a powerful motivator, but your kids may need additional incentives. If you’re able to do so, offer to match each child’s savings at pre-determined intervals. Alternatively, offer cash or in-kind incentives for met or exceeded savings goals. A child who successfully meets the 10 percent threshold for a full year, for instance, might earn a new gadget or a long-anticipated outing.
4. Reinforce the Concept of Compound Interest
For kids and adults alike, the temptation of instant gratification can be overwhelmingly powerful. Regardless of its long-term financial consequences, even rational economic actors can be swayed by the appeal of an immediate purchase.
The concept of compound interest is a powerful argument in favor of delayed gratification. As soon as your child can grasp its arithmetic, introduce this concept with an online interest calculator and your consumer bank’s rate schedule. After setting specific timescales and starting amounts, have your child calculate the amount of money that he or she would earn at each offered interest rate. Reinforce the lesson by asking your child to use the make-believe funds to “shop” for items. Once he or she sees the real-world buying power of saved funds, the lesson is sure to stick.
5. Lead By Example
As a parent, it’s up to you to set a good example. Use the necessary work of teaching your child to save as an excuse for getting your own fiscal house in order. Every time you make a savings account deposit, for instance, show your child the receipt and translate the number into a percentage of your income.
At the same time, even the most careful savers make mistakes. As your child ages, gradually ease off the “training wheels” that you’ve used to reinforce good financial behavior and step back. When your teenager takes on a part-time job, require him or her to pay for small but essential items like shoes, school supplies and entertainment. If he or she chooses to make an ill-advised purchase that takes funds away from these necessities, let it be a hard lesson in fiscal responsibility.
A Work in Progress
Your child won’t become a financial expert overnight. Like any other educational endeavor, the experience is likely to be fraught with pitfalls and setbacks. In the long run, however, your child will certainly thank you for your guidance.