Children should learn how to save to avoid creation of a financially drained generation. If a kid begins by saving several pennies weekly, he will accumulate lots of money during his whole working life of thirty years. If this cash is saved in a bank for all those years, it accumulates a huge interest.
Guardians could introduce this concept of saving to their children by demonstrating practically how it can be done. Kids usually do what the parents do rather than what they say. The parent could begin by keeping some extra cash in a savings account or a cash box. Alternatively, he can act like a banker and top up the savings of the kids based on their saving habits.
Learning how to save is a necessary part of financial literacy. For kids, and yes for parents too, saving money can be a very difficult process. Sometimes it can be our thinking about saving and sometimes it’s just our actions. Whatever the challenge learning this skill is essential. With this in mind let’s look at some ways we can incorporate saving into our daily routine and also the routine of our children.
The most common saving method is using piggy banks. Below are some of the different items that you can use to teach your child on how to save at home. Don’t be limited by these but rather be creative and innovative. The goal is to instill a habit not to win a Nobel prize.
In teaching kids about money, you should encourage them to have different piggy banks for different uses. For instance, one piggy bank could easily be their spending money for little items that they cherish. A second piggy bank could be used for them to save money for larger items they may want to purchase e.g., a pair of skates that they will have to save money on their own, in order to acquire. And the third is for money they want to donate.
This is also a great time to begin paying them a small allowance, just a small amount of money that they know is coming every week or every month depending on your preference. Make sure to give them bills and coins so they can easily sort the money out and learn how to split it so that it will last them the agreed upon duration of time. Remember not give them any extra money if they run out before the time elapses as it is very important that they learn to budget their money.
Give you children the opportunity to earn an allowance for doing extra work around the house. This will help them understand how earning money works in the real world. As they earn money then you can teach them about the importance of saving money that they are earning. As a parent you should insist and ensure that part of the allowance goes into the piggy banks as savings.
Many of us parents make the mistake of giving kids an allowance but not following up on how they make use of it. Neither do we make them realize the need for saving money at a young age and go beyond the concept of a piggy bank. When it comes to financial education, training the kids needs to be made a habit from an early age.
Make your child aware of what his or her piggy bank is really about. Kids can pick up fast and once they are aware of the benefits of saving, they are well on their way to financial wellness. One more important step for young children: when you say no, don’t ever change your mind for begging or whining. This will create a horrible pattern that will be a nightmare in the teenage years.
Parents should bear in mind and let the kids know that an allowance is not an entitlement or a salary but a tool for teaching children how to manage money appropriately.
Establish a habit for saving and giving money from an early age. Whether children receive an allowance or not, set up three or more jars labelled spend, save and give. Have kids choose a percentage of money they receive from allowances, gifts and special chores to go into each jar and at the end of an agreed upon time, let them decide on where to donate the money from their “give” jars, perhaps to a local animal shelter or environmental initiative? Charitable children have the added bonus of learning that there are more important things than material possessions, and that giving really does feel as nice as receiving.
You may like to consider the spend; share, save method, where everything your child earns or receives, they divide into the three areas. In this way you are encouraging them to develop good money management habits and also the principles of charity and helping others. You may consider adding a little extra to their savings as a way of demonstrating interest.
When paying pocket money or an allowance it is important not to set up an entitlement mentality in your child. If they think that they have a right to receive money from you from an early age they may grow up with that mindset. By all means link the allowance to chores and jobs around the home but consider that some tasks which contribute to the household should be done automatically and not for paid reward. You may like to create a separate list of family or community activities which the entire household share, along with an agreed list of extras activities for which your child will receive reward.
Going Beyond the Piggy Banks
If your child has learned the concept of earning money, either through specific chores at home, this is the stage where you should introduce them to the idea of saving money, where banks form part of the lessons. While piggy banks have become popular with many families, introduce your child to a real bank account where they can save.
This can be a game changer in their financial independence journey. This is because money saved in piggy banks just stays there until the time you want to spend it, while a lot of things happen to the money saved in a bank account. For example, banks lend money to people and businesses who pay back with interest. Therefore, you will earn a percentage of interest by saving money in a bank.
Banks are a good option for kids’ savings. Here kids learn that whenever you deposit money to the bank it is added to your account. If you want this money to buy some video games or new clothes, you can go and ask for your money and make a withdrawal. This means that you can withdraw your money either partially or wholesomely from your account.
An online research study found that only 51% of parents gave their kids an allowance, and 21% of them said they do so in recognition for chores. Meanwhile, just 47% used allowance as a way to teach about how to handle money irrespective of chores.
Here are some tips to help your children to grow their savings:
- Set a Target/Goal
When you set your target, it can be towards a specific item or towards a money goal. Whatever you are saving for be sure to put a time by which you want to hit the target. This will determine your saving strategy. Let’s say you want to buy a $50 toy in 5 weeks, well then you know your savings goal is $10 per week. I know this sounds simple but when you consider financial literacy for kids sometimes simple is the best.
The greatest advantage of helping your kids through this method is that it helps them learn to set goals. It is a very easy connection to see how much money they will need to save to purchase the item they want and how long it will take to earn it. Time, measured results and achievability are all necessary aspects of any goals and your child will have learned this lesson even though they may not realize it yet.
As your children save their money, it is very important that you help them understand why they are saving. They will be more motivated to save if they are working toward a goal, so help them set reasonable short and long-term goals for their savings.
Then they can decide if the item is really important enough for the effort. Then, when they finally make their purchase, they will be proud of themselves for having achieved a goal.
Of course, your children will sometimes forget their goals when they see a cool new gadget on T.V. or in a store. They will feel they need that item RIGHT NOW! Remind them of their goals when they are on the verge of impulsively spending money they should be saving. If they still decide to spend the money, chalk it down as a learning opportunity and let them – they will either realize their goals have changed or they will regret their impulsiveness and be more cautious next time. If you refuse to let them ever spend their savings, they will get discouraged and won’t want to save at all.
Work together to assist them in setting short- and long-term goals for their money. The long-term goals you may need to guide them and give them examples of what that would mean to their life. Short term goals should be easy to set. Have them pick something they want to save for that they can achieve in 6 months to a year. Cut out a picture and post it on their piggy bank. This will help them make the connection between money and having the things they want in life.
Start talking to your teen about what it means to live in the constraints of their financial realities. Discuss the difference between needs and wants since many teens feel the need for instant gratification. Explain that it’s more important to live within your means and earn what you spend, as that is the reality for most families.
2. Pay Yourself First
Sometimes the hardest thing to do when you are trying to save, is the actual act of saving, especially if you have a lot of bills. That’s why it’s necessary to adopt a principal of paying yourself first. Before you pay a bill or before your kids spend it all, put money aside. Some people say you should save at least 10% of your income but if you can’t start there, begin where you can and build from there.
This is the foundation of good family finances: Don’t have every cent you earn immediately head back out the door. Decide how much you are going to save for emergencies, retirement and college. Save out of every paycheck, bonus and raise. Saving now means you’ll spend yourselves rich later.
3. Track your expenses
You need to track where your money is going. So, spend a week writing down everything you spend money on. By doing this you will expose the leaks in your budget that are affecting your ability to save. Most people who do this are very surprised where their money is going. When you find the waste, cut it out.
4. An educated consumer is the best consumer
Regardless of how much you’re trying to save you will need to spend. When spending you want to make sure you get the most for your money. Be sure to look for sales and coupons which everyone knows.
When it comes to saving and increasing financial literacy for kids and adults it’s not about focusing on the big things. Change the little things and you and your kids can start to see big results in your bank accounts.
5. Spread the Wealth
Since your goal is to save money, you should use a combination of banks. You should consider using a regular bank for your everyday checking account and using an online bank for saving. All of your expenses, your pay check and everything you need for everyday living should be paid for out of this account. I would then set up an automatic deposit from your checking to your online savings account.
This will get you saving without thinking about it. I would also do this for your kids. The best part is since the savings are automatic and out of sight, the temptation is lessened to tap into them.
Given that time can play such an important part in the growth of money, the earlier a child starts his or her savings habit, the greater will be their return. Establishing good saving and spending habits in your kids at an early age may not be as difficult as you think. It will require a little due diligence on your part but is well worth the effort in the long run.
Here are top tips to improve financial literacy and encourage your child to start saving.
Lead by Example – have a jar or money box where you deposit your spare change. Children learn more by what you do than what you say. By wanting to follow your example your job is half done.
Add interest – when your child is old enough to understand the concept of interest you can act like a bank and top up their savings. Keep the numbers simple by adding 1 coin for every 5 or 10 they save. It’s a good opportunity to introduce some simple yet important money lessons.
Open an account – go with your child to the bank and open a savings account. Then make an event of going and making a deposit. Your child will make positive associations with the act of paying in money.
Save for a purpose – it’s much easier to create an interest in saving, when there is a strongly desired outcome on the end of it. Encourage your child to save for a holiday, a particular toy or something they value.
Consistency – For saving to become a habit, it must be done regularly and often. Then gradually, like brushing your teeth it becomes automatic and habitual. If you give an allowance encourage your child to immediately put some money away. If they get extra for chores or birthdays encourage them to allocate a percentage to saving.
Match their savings dollar for dollar – What better incentive for kids to save their money than for them to know that for every dollar they put away, it will be matched by a given amount. It’s kind of like “free” money. Okay, so it may not be free for you, but you’re helping establish the habit of saving and, in the long run, it will have been worth the extra money you had to put up.
Illustrate the power of compound interest – Show your child what can happen to her money over time if she saves it and is earning interest on it. This is called compound interest, the building of an account’s value on itself. You’ll probably have to go out several years for her to get the full impact of this compounding.
Give them an allowance – An allowance is a popular way to get money into the hands of kids. Most parents consider an allowance as an “earned salary” for doing chores. But once you hand over the money, how do you keep kids from spending it all? Consider having your child save a portion of it; the rest is theirs to spend. That way we get our cake…the saving…and your child gets to eat a slice of it…the spending.
Delayed Gratification – Teaching kids that good things come to those who wait will help battle the buy now, pay later attitude. Always reinforce the idea that waiting pays off. This approach could help them ward off credit card debt later in life.
REMEMBER! You can never be too young to save. Save & invest as early in life as possible.