While parents prepare their children for school by teaching them the alphabet and numbers, most do not realize that it is just as important to prepare children for life, and one of the most important aspects of life is money. Managing money, whether it is spending, saving, budgeting or investing it, is central to reaching one’s goals, like home ownership, retirement, vacations, gifts, and general financial stability for your family.
Although commonly understood but regularly forgotten, the best time for children to learn about saving is when they are young. The concept of saving does not always have to be about money; children can learn to save for other goals.
Talk About Money
It is a good idea to talk about money when your children are present. The discussion should not be an argument about spending, but rather a discussion about goals that you and your spouse want to meet and how you intend to save money to meet those goals. Children tend to imitate their parents and handle situations based on their observed experiences, so if you want your children to value and respect money, it is important they know you handle yours. Managing money is a lifetime habit and children need to see how the skills they are learning will be used when they become adults.
Use A Clear Glass Piggy Bank
While metal and ceramic banks are cute, you cannot see what is inside. Use a clear glass bank where children can see their money growing as they add coins and dollar bills. As money accumulates in the bank, you can even sit down with the child and help him count it, separating the coins and attaching the proper value to them. Shiny copper pennies may be pretty, but explain quarters are worth a lot more. Kids can learn about counting, money and saving at the same time. The sense of pride or “wealth” they will feel when you tell them how much their “bank account” has grown may help them grow accustomed to keeping money and not necessarily spending it on material possessions.
Learning To Save Can Be Fun
The concept of being paid to work is easy to teach since it is a reward based system. Children are usually taught proper behavior with rewards and punishments. Young children can be rewarded with television time, bed stories or video game time instead of money. When a child successfully performs a chore (or at least tries hard) like putting away his toys, reward the child with a “coupon”, which he can spend on an activity he likes. Use time periods on the coupon like 15 or 30 minutes and explain that if he wants to watch a two hour movie, he has to save his coupons until he has two hours-worth of time. Happily, this not only teaches saving habits, it also helps children learn about time. However, don’t be over-the-top strict with the rules that your child doesn’t enjoy their childhood.
In line with that last statement, there are definitely ways to combine fun and savings. For example, a pizza party with your child’s friends can turn into an important lesson on saving money with Dominos coupons or Pizza Hut coupons. If your kid wants ice cream, ask him/her to find a way to save money on the pizza to make room in the budget for ice cream. Obviously you should help your kid finally arrive at the solution, but it is essential to get them thinking about money as a finite resource, not something that just comes out of a wallet whenever they want.
Teach By Example
Children often imitate their parents, so it is important to show the children that mommy and daddy also save money. At the end of the day, empty the change from your pockets or purse and put it in a jar where the children can see it. Tell them that it is your saving jar. When the jar is full, take it to the bank and let your child see you deposit the money in your savings account. Explain that the bank is a safe place to keep your money and discuss opening an account for your child.
While it is not as common now as it once was, banks used to offer rewards like small appliances, ceramic banks and other gifts as a reward for opening accounts. Today, some commercial banks or credit unions offer gift cards or monetary rewards. You can reward your child with small gifts for saving money. Fill a “treasure” box with small items you can purchase at the dollar store and when your child reaches a saving goal, allow him to choose a reward from the box. This type of reward concept will probably be familiar to the child since many dentists and pediatricians have similar “treasure” boxes in their offices.
You may even decide to let your child spend a portion of his/her savings to buy toys or school supplies they want. By allowing them to occasionally purchase items, you demonstrate the power of having money, as well as budgeting, when you do not allow them to spend more than they have saved.
Many adults work for employers that encourage retirement savings by offering matching contributions to company sponsored pension plans, IRAs and 401(k)s. Offering to match a child’s contributions or giving a bonus when the savings reach a certain amount, is a great way to encourage kids to continue saving money, especially if they are saving toward a specific goal, like a new video game. However, make sure they never completely deplete their account and give examples of life’s emergencies that require a financial buffer.
Open A Savings Account
While young children do not understand concepts like compound interest, opening a savings account is another good way to teach children to save. You can explain to your child that the bank pays you for keeping your money in the savings account and the more money they keep there, the more the bank pays them. When children are old enough to understand basic math, you can show them the bank statements so they can see how much they earned on their savings.
Have The Child Write A Wish List
Parents can even take this a step further and decide to invest your child’s account balance in a money market or CD (or for our UK readers, a cash ISA). Almost all banks offer these short term investment options, though it may take a few years before the money accumulates to the minimum amount needed to invest. On the flip side, our UK friends can get the best cash isa on the market with relative ease.
No matter the age of the child, there are always special items they want – game systems, new games, toys, trips or even cars. Parents should have their teenagers write a wish list with the items they want and the amount of money they will need. Ask them “which item do you want the most?” Counting out the amount of savings each week (for younger children) can help a child see how he/she is progressing toward a goal and may encourage him/her to forgo other treats to be able to reach the primary goal faster. Another strategy is for the child to decide to save a certain amount toward different items on his list each week.
Playing Games With Money
Monopoly money may not be worth anything at the store, but playing games, like Monopoly or Life, can teach children financial concepts like saving, investing and planning for the future. There are other games, both video and board games, that can teach money management skills to kids while they have fun.
Earning, spending, saving, and investing money are important skills which children do not learn in school. Many high school and college graduates today have no idea how to balance a check book or use a credit card wisely. Parents who teach their children about financial planning from an early age will be rewarded when the children grow into financially responsible adults, especially ones who don’t ask to borrow from their parents.