One question I get asked all the time is “how do I teach my kids how to save money?” I’m not surprised this is a repeat inquiry, because as a parent, I know it’s an uphill battle. But you want to give your kids a solid financial foundation, and my answer to this question is generally two fold: First, they have to have access to money. Then, you have to show them how to set goals.
We’ve talked about the first before – I’m a big fan of allowances, and, if the kids are old enough, a part-time job. If the kids are younger, they can do extra chores around the house. The important thing is that they have a sense of autonomy, a purse of their own that they have to manage and make decisions about. Because if there is one thing I know for absolutely sure, it’s that kids are much less likely to blow their own money. They don’t have a problem blowing yours.
Once they have that cash, the goal-setting comes in. Here, the best way to approach that lesson:
Put the ball in their court. If kids do one thing really well, it’s want. So the next time they get a case of what I call “the wannas” – it’s been known to strike hard at the grocery store, even harder at the mall – talk to them about what the item costs and how they might buy it for themselves. Break it down for them, so they know exactly how many allowances or paychecks will go into purchasing that item. They may decide it’s not worth it, and that’s fine. Being able to make these choices is an important part of being a financially savvy adult. But if they still want it, talk to them about this next point – budgeting.
Give a crash course. Most of us don’t have unlimited resources. So when we want to buy something that isn’t already in the budget, we need to find the money for it. More often than not, that means taking money from somewhere else – maybe you go out to dinner twice this month, instead of weekly, so you can buy that new air conditioner or take that trip to the beach. This is a concept that kids can grasp: Talk to them about where they’re spending their money, then show them where they can cut back so they can put aside a little bit of cash each week or each pay period for their goal.
Make a plan. Once they know how much they can save each week, help them calculate how long it will be before they have enough money to buy the item they want. If it’s too long, they can go back to the drawing board: what else can they cut out so they can save more? And if they slip up, overspend, and set their plan back, let them feel the effect of that.
Stash the cash. If they’re younger, they can watch their money grow in a fun piggy bank. If they’re older, help them open a savings account where they can earn a little interest (I think 9 or 10 is about the right age for this – they’re old enough to “get” it at that point). Take the opportunity to explain the concept of interest, and show them when it accrues.