When it comes to teaching your children or grandchildren to save money, it’s never too early! Instilling good financial habits will pay dividends later, literally and figuratively. Once you and your child start making regular deposits into your child’s savings account, you can watch the savings grow together. Use the suggestions below to teach your children some good financial habits.
Teach them to budget
An allowance can be a great first step in showing your kids how to manage money.
How much allowance should you give each child? The answer depends on you, but a good rule of thumb may be to give children:
Ages 9 and below: $5.00
Ages 10-11: $10.00
Ages 12-13: $15.00
Ages 14 and older: $20
You might give money every week to the youngest children, at two-week intervals for preteens, and monthly for teenagers. Gradually spreading out the timing will help your children understand the need to manage their spending.
Teach them to set goals
Accomplishing goals has many benefits, including greater self-esteem. Younger children may set a goal to purchase a new toy. Older children may be encouraged to save for a larger purchase, such as a bike or even a smartphone. The truly ambitious teen could even save for a car! Teach them to set reasonable goals, but encourage them to be ambitious as well.
Show them the value of saving
It's only natural for money to “burn a hole” in the pockets of kids. But it's important for them to discover the benefits of delayed gratification. If there's a toy or a game they have their eyes on, suggest they not spend their allowance on ice cream or some other immediate pleasure. Instead, encourage them to save for a few weeks to make the bigger purchase. Perhaps you can help them to open a savings account. Then you can use automatic recurring transfers from your account into the child’s savings account. That way you can pay their allowance and you don’t even have to think about it. No more forgetting that it’s allowance day. The best part is that you can watch the total amount grow together.
Teach them about credit
If your kids want to borrow money for something that they cannot yet afford, charge them interest. Set a simple interest rate and draw up a simple agreement. You can even make it fun by making up payment coupons or finding another way to track your child’s payments. Be consistent and don’t let your child borrow too often. You don’t want them to think of parents as a free ATM. Teach them to save first and to use credit as a last resort.
Create learning opportunities
If your children spend their entire allowance right away, resist requests for more money before their next allowance is due. Negative consequences can carry powerful lessons. If you talk with your kids about how to do better the next time around, they'll probably start making smarter choices.
Let them earn a little extra
You probably expect your kids to clean their room, help with the dishes and do other daily chores. But consider offering them the chance to make extra money by helping you organize the garage, washing the windows or taking on another job that goes beyond the routine. Getting paid for extra work will help instill good habits and give children more control over saving and spending.
Teach your kids how to make money
Children often lack a great appreciation for money because they don’t understand how money is acquired. In their world, it is usually given to them on birthdays, through allowances, or as random grants from grandma. Help them research age-appropriate business ideas that interest them, then assist them as they put those ideas into practice. Just don’t do it all for them. Teach them the basics of running a simple business, such as a lemonade stand. The lesson can be as simple as setting a price for the end product based on the cost of supplies. They will learn math, marketing, responsibility and a variety of other skills.
Even if your children end up being employees of another company when they are older, they will have a greater appreciation of the challenges involved in running a company.
Teach them about compounding
Encourage your kids to save in a savings account. Teach them that once the dividend in a savings account is applied to the amount already there, dividends are applied to that new, higher amount the next month, and the next, and the next.
Introduce charitable giving
Most kids learn about money by watching their parents. Even when your kids are very young, you can speak with them about your charitable gifts. Talk to them about organizations they might like to support, then earmark part of their allowance for donations to those causes.
Go with the flow
Each child (and adult) is different. Each child has their own financial “personality.” One of your children may be a spender, while another may be a natural saver. That may require different teaching methods.
For the natural spender, perhaps you may give a smaller allowance once a week, rather than a larger amount every two weeks. Once the child is a bit older, open a credit union account for him so that he is not so easily tempted by cash which may be readily within reach.
The saver may need to be encouraged to give to a good cause of his or her choice. That child may also benefit from greater leeway in spending choices.
As you can see, there are lots of opportunities to teach your children to save and manage money. Teaching these concepts to your child or grandchild early can help you lay the foundation for financial wellness in the future.