Tips for Teaching Your Child to Save Money During Financial Wellness Month
January is Financial Wellness Month & it is important for youth and families to start making good habits. The habit of saving money may be a crucial life skill. Saving habits are important lessons to help youth learn about being financially established while they are young. Teaching them about gratification when it comes to money can help guard against unnecessary spending and learn to value establishing control of their money. With that in mind, here are some steps you can take to get your kids on the saving bandwagon.
1. Discuss Wants vs. Needs
The first step in teaching youth the value of saving is to help them distinguish between wants and needs. Needs include basics such as food, shelter, basic clothing, healthcare, and education. Wants are anything extra like broadway tickets and snacks or the most updated smartphone.
You can quiz them on items in your home to teach them this concept. An example would be pointing out items in their bedroom or kitchen and asking them whether the object is a need or a want. This allows you to explain the importance of money management.
2. Let Them Earn Their Own Money
Two-thirds of parents said they paid their children an allowance in 2019, according to a survey by the American Institute of Certified Public Accountants (AICPA), with kids earning $30 per week on average, based on five hours of chores. When you offer allowances in exchange for chores, they’re also learning the value of their hard work.
3. Set Savings Goals
To a kid, being told to save without explaining why may seem pointless. Helping children define a savings goal can be a better way to get them motivated.
If they know what it is they want to save for, help them break down their goals into manageable bites. For example, if they want to buy a $50 video game, and they get a $10 allowance each week, help them figure out how long it will take to reach that goal, based on their savings rate.
4. Provide a Place to Save
When youth have a savings goal in mind, they’ll need a place to stash their cash. For younger children, this may be a piggy bank, but if they’re older, they can set up their own savings account or even get a kid-friendly debit card. Cards by the likes of FamZoo, and Greenlight notify you when they make purchases & allow them to create their own savings goals.
5. Have Them Track Spending
Part of being a better saver means knowing where your money is going.
If your children get an allowance, having them write down their purchases each day and add them up at the end of the week can be an eye-opening experience. Encourage them to think about how they’re spending and how much faster they could reach their savings goal if they were to change their spending patterns.
6. Offer Savings Incentives
One of the reasons people save in their employer’s retirement plan is the company’s matching contribution.
If your child has set a big savings goal such as a $400 tablet, you could offer to match a percentage of what they have saved. As an alternative, you could offer a reward when your kid reaches a savings milestone, such as a $50 bonus for hitting the halfway mark.
7. Leave Room for Mistakes
Part of putting kids in control of their own money means letting them learn from their errors. It’s easy to step in and steer kids away from a potentially costly mistake, but it may be better to use that mistake as a teachable moment. That way, they’ll know in the future what not to do with their cash.
8. Act as Their Creditor
One of the basic tenets of saving is to not live beyond your means. If your child has something they want to buy and feels impatient about saving for it, becoming your kid’s creditor can help to teach a valuable lesson about savings. The lesson you want to teach is that saving may mean delaying gratification longer, but the item you want to buy will end up costing less if you wait.
9. Talk About Money
If you want kids to learn about saving, you have to nurture an ongoing discussion. Whether you schedule a regular weekly check-in to talk about money or make money chats part of your daily round, the key is to keep the conversation going.
10. Set a Good Example
Getting your emergency fund in shape, opening a 529 savings account, or simply increasing your 401(k) plan contributions are all steps that you can take to encourage saving as a family activity. You could also decide to save for something together, such as a big-screen TV, a family vacation, or a pool.