How to Teach Children the Value in Being Young Savers
Personal finance expert and member of the President’s Advisory Council on Financial Capability, Beth Kobliner, offers interesting insight on the ages when children start becoming aware of money. She says that children as young as three years old begin to grasp financial concepts like saving and spending. The very notion that children as young as preschoolers are observing how we use money makes it imperative we take advantage of teachable money opportunities. The primary influencer on children’s financial habits, parents are responsible for helping raise a generation of thoughtful consumers, savers, investors and contributors.
Everyday activities are an opportunity to teach children the value of a dollar. Pretending and playing like you’re in a store or restaurant shows kids that what they’re buying or ordering results in a bill that must be paid. By exchanging play food and goods for money, children quickly learn the basics of commerce, which is an excellent kick-off. Letting your youngster clip coupons for the next store trip (and taking them along to find those sale items!) demonstrates how easy it is to save—it’s all in how you plan.
There are many ways to engage your child’s interest. Use these ideas as suggestions to get your child on the fast track to becoming a responsible consumer and investor…
Get them a savings account
Show your kids where the magic of savings happens by taking them to your credit union and an opening them their own savings account! Some parents feel like they need to teach basic skills like currency and interest before their child is ready for an account. Not necessarily! If your child has a piggy bank, earns allowance, or if it’s just that they ask you to buy them things, they should experience seeing exactly where the money goes and where it grows. This all starts at the branch!
Give them an incentive
Being told to save money isn’t enough to fly with kids. Children need encouragement, motivation to save. Without some type of incentive, they’d spend it immediately, probably quite frivolously. Establish a time frame, say a month, to save up allowance and earnings. Tell them that at the end of the month, you’ll match the total 100%. This entices young savers because soon they’ll have twice as much. Of course, if your teenager makes decent cash doing yard work or babysitting, you might want to decrease the match accordingly.
Let them see their money grow
Part of teaching children smart money habits is hammering in on the notion that saving is a long term goal, not a short term race. This is best done by explaining how compound interest works. The longer the money remains invested, the greater the compounding effect. Once your child understands the principle of interest, they’ll be motivated to save more for the next deposit. Money’s power to grow over time is of one its most advantageous properties.
Explore real-life lessons
Whatever you’re buying, demonstrate how you compare prices. This not only teaches kids that just because it’s more expensive doesn’t mean it’s better, and there are always options to reduce cost. Plus, not spending top dollar means you’ll save that much more for something else. Great opportunities for explaining the value of comparison shopping include purchasing generic versus name brands, or hitting the clearance racks for the same quality clothing.
Play games together
Family game night? You can make it fun and educational, too. Monopoly, Pay Day and The Game of Life are just several of many games that teach kids money management skills and the value of a dollar. The goal of these games isn’t just to reiterate the importance of saving, but also budgeting, investing and spending smart—three fundamental goals of finance. Monopoly is a classic game that hits all angles, even the importance of an emergency fund to cover additional expenses associated with investments, like taxes.
The sooner you save, the faster your money grows
Regardless of your age, the key to any strong financial plan is having money when you need it and when you want it. Getting there requires knowledge, awareness and diligence. As parents, take the necessary steps to instill financial literacy in your young children. There are countless activities, games and real-life lessons that provide an excellent opportunity to do so, and most importantly, it can all be fun!