Understanding the Value of a Dollar: How Should You Teach Your Children About Saving Money?
Teaching your children about the importance of saving money now can give them a solid financial foundation for their future
When parents are trying to save money, they often make it a goal to include the whole family in the effort. This involves teaching children how important it is to save. As simple as it sounds, however, this task is often challenging. Many children, especially young ones, don't understand the concept of paying money for products or services. So how can parents teach them and make it a family affair to save?
- Practice what you preach.
- Come up with a jar or envelope system.
- Create a saving chart.
- Match your child's contributions.
- Talk about money.
- An allowance isn't a bad idea.
- Let your children make financial mistakes.
- Teach the differences between a need and a want.
If you've ever spent time with children, you know that they pay a lot more attention to what you do rather than what you say. They imitate the actions of the adults around them, especially their parents and other authority figures. If your children not only hear you talking about saving money but then see you saving money, the chances that they will want to do the same increase.
Keep it visual but simple, especially for younger children. Think about keeping piggy banks in various rooms around the house and put loose change into them whenever you find some. Your children will see you doing it and will want to get into the same habit. By the end of the year, you may have saved enough for a simple but fun family outing.
Label separate containers, such as jars, envelopes, or even Tupperware, to represent the different areas in which children can allocate their money. You can label them with different types of allocations, such as Save, Spend, Give, and, when the child is old enough, Invest. This will help teach them about budgeting their money. Help them figure out what they want to spend right now, what they really want to save for, and who they can help by giving. This type of system can lay a solid foundation for budgeting systems they'll use as adults.
Make a saving chart for every member of your family outlining how much they need to save every week to reach their savings goals. Hang them in accessible locations to keep everyone accountable and mark off weekly goals as you reach them. When the end of the year comes around, you'll have stuck to your savings system and saved a significant amount as a family. Children respond very favorable to visual stimuli, especially when there are goals and your current status represented.
This tip is good for children who are a bit older and can understand better. Just as many companies have programs in which they match retirement contributions for their employees, you can give your children the same kind of bonus for saving. As he or she saves, match them penny for penny or dollar for dollar. They'll watch as their money grows and enjoy getting an extra boost from you. It will also motivate them to save more. Just make sure you can afford it yourself if you have very dedicated children!
The only way to really keep your children involved in a family savings plan is to talk to them about money. Keep them in the loop at age-appropriate levels, particularly if you make any kind of financial sacrifice as a family that could lead to a financial gain, such as cutting the cable cord. This will teach them that it takes teamwork and effort to get ahead. Don't forget to give reasons why certain actions must be taken, but described at age-appropriate levels.
When your children are old enough to do basic math, consider giving a small allowance that you can adjust as they get older. It can start with a very small amount, but make sure it's enough to buy something but small enough to avoid tough spending choices. The allowance can be placed into your jar or envelope system for spending. But avoid using an allowance tied to doing chores, which should be done as a contribution to the household, just as you do. Tying an allowance to chores could backfire the moment the child makes the decision to forgo the allowance in order to skip doing the chores.
Think about some of your biggest mistakes and regrets from when you were growing up. Those moments stick with you and become strong learning experiences. Just like you made mistakes and learned lessons, so should your children when it comes to money. But the idea is to have them make most of their financial mistakes and regrets when they are young, not when they are entering adulthood. Would you rather they learn a lesson by making a financial mistake with a new gadget or a new mortgage? But whatever happens, you should never bail them out of financial trouble. Let them live with the consequences of their actions, which will cause them to learn and better plan.
As soon as your children are able to understand the concept, you should be teaching them the difference between needs and wants. When they are ready is up to your judgment as each child is different. But you should be able to explain in easy-to-understand terms about a need being something that is fundamental and a want as something you can live without. You may have to get creative about some of those gray areas, such as clothing and food. Both are essential, but $100 jeans and $4 bottles of water are not essential. You could choose to split the difference if the child has a need that could blur into a want. Think about a winter coat as an example. If you would usually buy one from Walmart for $40 but your child wants one that is in-style for $120, you can create rules to both provide the needs and allow the wants. You could set up a rule that you'll cover the usual expected price but that the child needs to cover the rest, or the 'want portion.'