Remember getting your first piggy bank and proudly stashing away every nickel, penny or quarter, not to mention the greatly sought after “folding money” that slipped so neatly into the slot. Technically, that is the first lesson of saving, but money management is much more complicated than just stashing it away out of sight. There is always going to be something you want so much you are willing to smash that poor little piggy to smithereens and make off with the cash.
As important as managing our money is, it’s surprising how little we learn in school about it. That means it’s up to us as parents to get our kids on the savings fast track. The sooner we start the better.
Delayed Gratification One of the first lessons kids need to learn is that they may have to wait before they can buy something they want. If they don’t have enough money to buy it, and it’s not a matter of life or death, they will have to wait until they have saved enough to pay for it. Once they have reached their goal, they still may have to set priorities and pay for necessities first. We can help our children learn about making choices by giving them some money and having them decide how they want to spend it. Ask how they will make their decision and what they might have to do without later if they spend their money now.
Allocating Savings Not all saving is equal. There is saving for “spending money” for small items like a treat or inexpensive toy. There is saving for “charity or giving” that is used to help someone in need or to give at church. And then there is “long-term” saving to help pay for a special trip or sports camp. Some experts recommend children have three separate jars (or piggy banks), one for each kind of savings. Have your child divide their money, whether from allowance, birthday gifts or payment for doing special chores, between the three jars. Whether the money is divided equally or not is up to you and your child. How you choose to divide it is another of life’s important lessons.
Set Goals Kids need to have a goal to truly understand how saving works. Have them choose an item they want to purchase and talk about how long it will take to reach their goal. Make sure the goal is attainable so your child won’t become frustrated. Once the goal is met, they will have the sense of satisfaction of knowing they have accomplished what they set out to do and their reward is the long-awaited purchase.
Open a Savings Account Let your child open a savings account at the bank so their long-term savings can draw interest. Go over their account statements with them to explain how their money is growing. They soon will understand that the more they save, the faster their money will grow.
Sometimes as grownups we like to shelter our kids from financial decisions, but the best way for them to learn is by understanding that even parents have to save, put off purchases and weigh the pros and cons of their purchases. Whether it’s over which brand of cereal to buy at the grocery store, or which car to drive home from the showroom, every financial decision has ramifications, some big and some small, but managing money takes practice. The sooner we help our kids get started, the better prepared they will be to manage their finances as adults.