The habit of saving money may be a crucial life skill, but it doesn’t come easy. In fact, a 2021 survey by LendingClub found that as many as 54% of American adults were living paycheck to paycheck, with little or no money saved for future needs. Every family has a reason as to why they fell into this trap, but saving habits are important to teach children when they are younger. Teach them to take a step back and ask themselves if this is something of need or want and what happens if they keep spending on things they want and not being patient and saving for the things that they want. Here are 10 steps you can take to get your kids on the saving bandwagon.
1. Discuss Wants vs. Needs
The first step in teaching kids the value of saving is to help them distinguish between wants and needs. Explain that needs are things like food, shelter, basic clothing, healthcare, and education. Wants are all the extras—which include going to the movies, designer clothing, the newest gaming console, latest and greatest smartphone. Quiz your kids on different items to give them a better concept of needs and wants. Can just point out the things in your household and ask them if that item is something that is needed or wanted. It allows you to explain the idea of prioritizing what money you spend and leaving money aside for other future necessities.
2. Let Them Earn Their Own Money
A survey by the American Institute of Certified Public Accountants (AICPA), stated that 67% of parents pay an allowance, with kids earning an average of $30 per week, based on five hours of chores. If you want your children to become savers, allowing them to earn and save money provides them with the opportunity to learn how to use it. When you offer allowances in exchange for chores, they’re also learning the value of their hard work.
3. Set Savings Goals
It’s almost pointless to tell a child to save without giving them an explanation as to why they must save. Helping children define a savings goal can be a better way to get them motivated. If they know what it is they want to save for, help them break down their goals into something that is manageable for them. For example, if they want a video game that costs $50 and they get a $10 allowance per week, help them figure out how long it will take to get that video game.
4. Provide a Place to Save
When your children have a savings goal in mind, they’ll need a place to stash their cash. For younger kids, this may be a piggy bank, but if they’re a little older, you may want to set up their own savings account at a bank or even get a kid-friendly debit card. Cards by the likes of FamZoo or gohenry notify you when they make purchases and allow them to create their own savings goals.
5. Have Them Track Spending
The best savers know where their money is going, whether that’s through banking apps or the old-fashioned way with paper and pen.
If your children get an allowance or even just money from birthday presents, have them write it down somewhere, and anytime they spend money they need to write that down too. It allows them to know where their money is going and how they are spending it. Encourage them to save for those bigger items that they want and will help them change their spending patterns to save for that item. Part of being a better saver means knowing where your money is going. Tracking expenditures is a little easier with a bank or debt card app, but you can also do it the old-fashioned way. If your children get an allowance, having them write down their purchases each day and add them up at the end of the week can be an eye-opening experience. Encourage them to think about how they’re spending and how much faster they could reach their savings goal if they were to change their spending patterns.
6. Leave Room for Mistakes
Kids are going to make mistakes and that’s okay because that’s where the lessons are learned, protecting them from any mistakes will not teach them the same way as making the mistake themselves and learning how to not make that same mistake in the future. That way, they’ll know in the future what not to do with their cash.
7. Offer Savings Incentives
One of the reasons people save in their employer’s retirement plan is the company’s matching contribution. After all, who doesn’t like free money? If you’re having trouble motivating your kids to save, you can use that same principle to ramp up their efforts. If your child has set a big savings goal—for example, a $400 tablet—you could offer to match a percentage of what they have saved. As an alternative, you could offer a reward when your kid reaches a savings milestone, such as a $50 bonus for hitting the halfway mark.
8. Act as Their Creditor
Teach your children to live within their means. Every kid has a toy or game that they must have right away and don’t have the patience to wait and save their allowance. For example, say your child wants to buy something that costs $100 and, of course, they don’t have it. You could “lend” the money and require payment from their allowance, with interest. This will teach them about how much they could save if they had just waited and saved the money. Giving them an understanding, of the value of a dollar earned and spent.
9. Talk About Money
41% of parents said they are embarrassed to talk to their children about money and financial struggles. However, discussing it and having them understand the struggle can help them understand what is involved with making and saving money. Whether you schedule a regular weekly check-in to talk about money or make money chats part of your daily round, the key is to keep the conversation going.
86%, The percentage of parents who need to either increase or replenish their emergency fund in the wake of the COVID-19 pandemic, according to a 2021 T. Rowe Price survey.
10. Set a Good Example
A survey found that only 59% of parents had any money saved for retirement, while only 55% had an emergency savings fund. Children will follow tend to follow their parents’ financial habits, so why not set a proper example? Can start off by setting up an emergency fund started, opening a savings account, or increasing your 401k contributions. Even family activities don’t need to be a single parent’s chore, they can be shared with the whole family.