Teaching your children how to save

DO YOU NEED IT… OR DO YOU WANT IT?

One of the first things to tackle after you’ve decided to teach your young-lings about money and finances is making sure they understand the difference between things they want and things they need.  Children discover at a young age that money helps them obtain things that interest them, however, teaching them to obtain the things that matter is where you will succeed in starting them on a successful financial journey.  I recommend testing them by giving them a dollar and telling them they can use that dollar to buy their lunch for the day or a toy to play with for the afternoon.  But they only get one dollar so they must only choose one.  If they choose to purchase lunch, great!  They already have a solid concept of how food is a necessity to the body and how money should be spent on the basic necessities of life.  If they choose the toy, you must make them understand that they have forgone their lunch for the day to play with a toy, so when they get hungry you must explain to them that they don’t have enough money to buy the food because they decided to purchase the toy.  Now of course, you will eventually end up feeding them lunch, but it is important that you use their poor choice as a lesson so they understand the difference between needs and wants.  When they get older, knowing the difference between when you need to spend your money versus when you just want to spend your money can help them save significant funds in the future.

ALLOWANCES ARE FUN!

After you’ve demonstrated the importance to your children of knowing how to prudently spend money, it’s time to let them start being responsible for their own money.  I recommend a small allowance that your children get from doing chores and work around your house.  It doesn’t have to be an amount that will break your bank - anywhere from $10 to $30 will teach the lesson your children that you must work in order to have money.  Make sure that if your children are not working that week or don’t complete the tasks you’ve asked them to, that they will not receive their allowance for that week and make sure they know why.  Once they understand they must work to receive their money, you can then stress the importance of saving their money.  For example, you can set up a system that if your child doesn’t spend any of their money that week and saves it all that they will earn an additional $5 at the end of the week for each week they saved.  This demonstrates the importance of saving as well as the concept that a dollar today is worth more than a dollar tomorrow.

SET A SAVINGS GOAL!

Once your kids have established a mentality to save, it’s time to help them set up a savings goal.  When explaining the importance of savings to a child, it very well may go in one ear and out the other.  However, explaining that the toy they have been asking you to buy for them for several months is $300, then demonstrating that if they save a certain amount each week they will be able to buy the toy themselves, you will find they grasp the importance of saving much faster because they have a real goal in mind that means something to them.  Having your kids work and save towards a goal item or goal experience teaches them at an early age that money really does add up.  So even though their allowance might not seem like much, over time it will accumulate into a large sum that is worth working towards.

I hope these tips and suggestions can help you get your children started down a path to financial knowledge and independence!  I believe one of the most important lessons you can teach your children is how to properly and prudently save and spend their money.  So please, if you have any questions or want some more advice I am more than happy to help!  Our children are the future, so let’s set them up for success!