Many kids see saving as the most un-fun part of having their own money. Totally understandable. Many adults aren’t wild about saving money, either. However, saving is definitely an important 1/3 of the Key Three Money Skills: spending, saving, and giving.
To be fair, the saving skill may be a bit harder to teach kids who are natural-born spenders. And yes, it is possible for a human to be wired as either a natural spender or a natural saver. Parenting odds being what they are, there’s also a pretty good chance that your kid’s inborn money temperament is the polar opposite of yours. So if you’re a great saver, your kid probably can’t wait to spend his green on anything that floats in front of him.
If your child happens to be a natural saver or even an over-saver—appreciate your good fortune! But if you’re raising a happy-go-lucky spender, these tips are just for you:
1. Create a saving system
Spenders can be impulsive with their money. Nuf said. So make it easier for your child to do the right thing by putting up some financial guardrails. You essentially want to create automatic habits, or systems, to guide your kid to save.
Every time your child gets an allowance, earns money from work, or gets money gifts from relatives, make it a rule that 10% (or whatever ratio you choose) of it always goes into savings. No exceptions.
Next, make sure your child’s savings are in a separate account, jar, bank or digital category from any spending money. The guiding principle here: “Out of sight, out of mind.” Kids aren’t as tempted to spend what they don’t see. And by the way, the system of automatically transferring money from a spending account to a savings account works great for natural-spender grownups, too. Just sayin’.
2. Incentivize Their Savings
This is the reward system at its best, used to teach your kid financial smarts. Whenever your child puts money in savings, consider matching a portion of it. If they put in $1, you add an extra 50 cents. If they save $10, you add another $5 to sweeten the pot. Your kids will quickly come to see the saving habit as a very, very good thing.
Yes, your child will earn some interest on their money, if they put it into a savings account of some type. However, interest rates are low enough right now that your child might not get excited about earning an extra 12 cents a month. Your match makes savings much more exciting.
3. Teach Kids About the “Future Value of Money”
This is a good conversation to have with kids who are in late grade school or middle school. The main lesson: Over a long period of time (years, not just months), the build-up of compound interest—and perhaps parental matching funds—on your child’s savings means they’ll earn lots of extra “free” future money.
Here’s an example. The average kid gets an average allowance of $68 per month.
If your kid hypothetically could save that entire allowance from age 8 to age 18, they would have a whopping $14,230* by the time they go to college—without even taking on a part-time job.
The “future value” of your kid’s humble $68 monthly allowance becomes more than $14,000 in 10 years. And more than $6,000 of that sum is “free” money from interest and parental matches. That’s a pretty compelling reason for kids to save.
Put another way: If your child spends every penny of their $68 allowance, they’re also erasing more than $6,000 in future money. Yikes!
4. Walk the Talk
You’re your kid’s best teacher. If you want them to understand how to save, let them see you do it. Talk out loud about saving money for that new flat-screen TV or your next family vacation.
Better yet, create a colorful savings graph and post it prominently on your refrigerator. Mark your family’s progress toward that family vacation. Celebrate your savings milestones along the way.
Help your kids (and yourselves!) see that good money things come to those who save.
* Assuming a 10% return, compounded monthly
(photo courtesy © Rich Brooks cc2.0)