We are firm believers that saving is a mentality and a mindset rather than something that just happens. Most people will agree that some degree of saving is a good idea, but even big believers in this may not yet have got around to doing so themselves. There are features here on the site that cover the concept of saving money effectively, but this article is a little different. In this one, we want to focus on instilling that saving mentality into children at the earliest opportunity. It may stick, or it may not, but the sooner you make sense of the idea, the better the opportunity they will have to make it work later in life.
1. Clarify the difference between Want and Need
One of the easiest ways to introduce the concept of saving is through the comparison of wants and needs. If you can make it clear to your child that some things are essential while others are optional, you can foster a sense of decision-making. Obviously, needs must be addressed, but if you can get them to understand that it may be a better idea to plan for meeting those needs in the future than splurging on wants today, we have a great basis for expansion.
2. Introduce Real-World Experience of Money
You probably do not want to send your kids out to work. Even if you did, the chances are that the law would prevent you from doing so. However, there is no reason not to start them off early in the home if they want to. The idea of chores in exchange for an allowance is nothing ground-breaking but can provide a firm footing to understand the value of money. Not only will they get an idea of working for what they want, but have the opportunity to see what saving can do for them.
3. Work with Your Child on Goals
As a parent, you’ve probably noticed how difficult it is to encourage a child to do something just because you said so. Money is no different, so if you can work with them to meet savings goals, you build in relevant and adaptable skills. The chances are that needs are minimal at their age, but if they want to buy something for a price that exceeds their allowance, work with them to understand how much they need to save and when. If they can do so without dropping all ‘wants’, the lesson can be even better.
4. Help with Somewhere to Save
Kids are like adults in that the easier their money is to access, the simpler it is to give in to temptation. When they are particularly young, a piggy bank will do, but as they get older, you can see a bank account as an opportunity. It is up to you whether they require your consent to make a withdrawal, but the sooner you can introduce banking, the better.
5. Instil the Benefits of Tracking their Spending
As noted, ‘needs’ will be few and far between for most kids, and their allowance will go out on ‘wants’ instead. A full audit may be a bit much for their age, but if they can track their spending, that gives you both the opportunity to review it at the end of the week. If they can see a real example of their money being better spent elsewhere, they are more likely to think about saving it in the future.
6. Incentivise Saving
When we save in the right place, we are rewarded with interest – basically free money. If you have gone with the bank account option, you can potentially do the same. If not, you can introduce your own incentives, such as adding to an amount saved to give your child real-world insight into how saving can pay.
7. Embrace Mistakes
We are attempting to allow your child to learn the benefits and importance of saving here, not to turn them into the next Warren Buffet – yet. Mistakes are among the best learning tools, and you must always remember that they are indeed still learning and not everything will go to plan. If they ditch their goal and splurge on something unexpectedly, it is not your job to punish them, but at the same time, you should not necessarily bail them out. Once again, this experience will likely influence their future decisions.
8. Expand on the Saving Concept
If your child does well with saving, you can build on the momentum to enable them to learn about other facets of their financial life. This could involve becoming the parental equivalent of a credit card or loan company. If they have demonstrated responsibility with savings and have a good ‘credit score’ with you, consider loaning money for their next big purchase and see how they stick to repayments.
9. Don’t Be Afraid to Discuss Money with Kids
It is amazing just how many parents shy away from the discussion of money with their kids. In some families, it is even a taboo subject between the adults. However, we feel that a good grounding in financial prudence is something that is continually ongoing. It could be just the basics like saving, but you might even want to explore further and cover investments, credit cards and more with real examples. Even if they do not use this information immediately, they will know where to come when they have questions.
10. Use the Opportunity for Yourself
If you have undertaken to help your child to learn about finances, it could be a good time to assess your own. If your savings or retirement plans have fallen behind, you can work on them together. If nothing else, it will introduce the concept of accountability to both of you, and it is amazing how much of a driving force the preference to not let down someone close to you can be when working towards your goals.