Whether you’re saving for a family vacation, college tuition, or a new car, pinching pennies can be challenging. But as tricky as saving money is for adults, the concept is far harder for children to grasp.
Children do not have the experience or maturity to comprehend the benefits and impact of saving — or not saving — their money. Without the responsibilities of working and balancing a checkbook, they may not understand that money is not an unlimited natural resource. They do not realize how much it costs to feed a family, take a vacation, or purchase new clothes every season for growing boys and girls. To a young child, having $5 means having a lot of money, and $100 most certainly makes you rich. Patiently saving money to purchase a new computer or gaming system can be a daunting feat for most anxious kids.
Financial experts agree that fiscal responsibility and solvency begins with a proactive and knowledgeable attitude. Mary St. Lawrence, certified financial planner and spokesperson for the Financial Planning Association, urges her clients to include their children in family financial planning sessions. “Letting children know that money requires managing gives them a great start,” she says.
With just five dollars, you can begin to instill in your child sound financial planning skills and knowledge that will be beneficial throughout his entire life.
1. Does the bank eat my money? One of the most powerful ways to teach children to save money is to let them see money accumulate. A child under the age of 6 might not fully understand that taking his birthday money to the bank is in fact a way of “saving” it. Unless his savings account yields a high interest return, St. Lawrence advises letting children see their allowance or birthday money accumulate before depositing it in an account.
“Cashing a relative’s check, adding it to his other money, and then depositing it is a great way to develop the concept of saving,” she says. Children do not always understand the value of a check. Taking them to the bank to cash it, then discussing its value before making the deposit makes them part of the process, and helps them to realize that checks do not represent an undetermined or unlimited amount of money. “This also helps children realize that the bank doesn’t ‘take’ their money,” St. Lawrence adds.
2. Set a good example. You’ll teach him a valuable lesson as well as help him pad his own nest egg by allowing your child to physically see you save money. Certified public accountant and business owner Richard Kessler suggests his clients establish a “home savings account”. “When a child sees you add your loose change or just five dollars a week to a milk jug, shoebox or plastic container, he understands the concept of ‘building’ savings. It’s important that children have a tangible example to attach to this concept,” explains Kessler. A once-a-month family trip to deposit the proceeds of your home savings account is another option to teach children the process of saving.
3. What’s in the cookie jar? Start a new family ritual to empty your pockets of all the change you collect every day. Set a family goal to save at least five dollars worth of change a week. At the end of the month, your children can help you sort out and count the savings. Realizing that there is enough change to purchase a new family DVD helps children equate saving money with reaching financial goals.
4. Track her progress. Financial advisor Michael Butler recommends charting your child’s financial progress. “Reviewing complicated monthly statements don’t always provide enough instant gratification for young savers,” cautions Butler. Posting a goal thermometer or chart on her closet door provides consistent reinforcement for a child to maintain focus on her goal. A child working toward saving for a new bicycle will know exactly how much money she needs to achieve her goal. Additionally, Butler suggests that “reviewing monthly or quarterly statements with children solidifies the progress and potential you’ve reinforced at home.”
5. A little saved goes a long way. When Judy Parker’s 16-year-old daughter Meredith started working, she was delighted at the thought of finally spending her ‘own’ money. “She was not pleased when we urged her to start her own savings account to deposit her paychecks into,” says Parker. Meredith was determined to test her parents’ theory and decided that every pay period she would save the equivalent of five dollars for every day she worked. “At the end of the summer, Meredith had saved more than $1,000, enough to travel to Europe for her senior year class trip,” Judy says with pride. “I’m confident she’s learned the significance of saving money — even if it seems likes a small amount per paycheck.”