Saving money is a skill that a lot of us didn’t learn when we were growing up. This has made adulthood more difficult than it should be for many. As we become parents, one of the best things we can do for our children is to teach them about savings and money management. What are the best ways to teach your kids about savings?
1. Teach Wants vs. Needs
One of the hardest things to learn when you’re practicing money management is the difference between a want and a need. Ideally, you will spend money on your needs first. Then, if there’s any money left over after you’ve put some into savings, you can spend it on things you want.
Take the time to teach your kids the difference between a want and a need. Make it a game. Point at something in your house and have them tell you if it’s something they want or something they need. Food, water, electricity and medicine all fall into the needs category, while things like their electronic devices or the internet might fall under wants.
2. Help Them Set a Goal
Your next step should be to help them learn how to set a savings goal. For little ones, that goal might not have a number attached to it. Instead, it might be an expensive toy or video gaming console that they want. You could buy it for them or you could help them save the money that they need to buy it themselves.
Help them figure out what they want to save their money for. If they have a goal or an endpoint in mind, they’re more likely to be thinking about the concept of savings.
3. Let Them Earn Money
Saving money is great, but your kids will feel like they have more invested in the process if they earn the money that’s going into their savings account or piggy bank. You’ve got two options here. You could give them a list of age-appropriate chores and offer to pay them for each completed chore. Or, you can give them an allowance each week after they accomplish specific tasks like brushing their teeth twice a day or keeping their room clean.
While they’re still likely years away from getting their first job and paycheck, this can help teach them what it’s like to earn their money and how they can save it to get something they want.
4. Help Them Track Spending
Whether your kids are earning an allowance or collecting some birthday money, they’re going to want to spend at least some of it. This isn’t a bad thing. In fact, it’s another teaching opportunity that lets them learn how to track their spending and ensure that at least some of it goes into savings.
As an adult, you’ll probably want to use the 50/30/20 budget method. This is where 50% of your income goes to needs, 30% to wants and 20% into savings. But you might want to change that up a little for your kids as you’re teaching them. Maybe it’s 50% to wants and 50% to savings so they get used to the idea of saving without worrying about paying for their own room and board.
5. Give Them Somewhere to Save
Everyone loves their piggy bank! But giving them somewhere more “adult” to save might be more effective. If you’ve got a bank account, go talk to a banker about opening a minor’s savings account. This would be opened under their name with you as the legal adult in control of the account.
Most of these savings accounts don’t have a minimum balance or an annual fee. They might not have a dramatic amount of interest growth either, but it can be exciting to see what they’ve saved grow by a little bit thanks to time and patience.
6. Allow Them to Make Mistakes
Learning how to save and manage money is a skill that takes time to learn. Sometimes, the best way to learn is to make mistakes. So let them make some. Let them take everything but a penny out of their savings account and spend it or skip putting money in the account for a few weeks. All of these actions have consequences, but they will learn from those consequences.
Childhood is the best time to learn. Making a mistake managing their allowance might suck, but making a mistake managing your paycheck could lead to having your utilities shut off.
Show, Don’t Tell
Finally, remember to follow the “Show, don’t tell” rule.
Kids are more likely to do something if you demonstrate it with your actions instead of telling them what to do. Ever heard the phrase, “Monkey see, monkey do?” They might have been talking about primates, but it definitely applies to children too. If you want them to learn how to save and manage money, show them by doing it yourself. You’ll be surprised how quickly they pick it up.