Children who learn to save from an early age have a huge advantage over their peers when they learn how to manage their money. But this does not happen automatically. Parents and guardians can play a vital role in guiding children in the right direction.
Here are steps to help kids learn about money and how to save, whether from their birthday present, their first paycheck, or even a few lucky coins found on the couch cushions.
Talk to your kids about money.
Before your child starts making moves with their money, an important first step is to talk about money and what it means to them.
Experts suggest asking your kids how they want to spend their money. How much would they like to spend vs. save? For the money they choose to save, why do they save it?
Getting kids to think about these questions can help them manage their money in the future.
Set an example
Children learn from what they see. If your kids see you diligently saving every month, planning your budget, and thinking twice about spending, they'll learn the same thing.
The advantage with children is that most of the time, you work with a blank slate. If you set a good example, your children will follow. They will learn that this is the way to do things.
Find a good savings account.
Open a savings account where your kids can earn interest and also watch their balance grow over time.
If kids earn interest on their savings, they'll eventually begin to understand the concept of compound interest at a young age. This concept, where interest earned on a savings account earns interest on its own, is a great way to save money and make their money work for them.
When choosing a savings account for a child, look for one with low or no monthly fees, no minimum deposit, and high returns. The best accounts for kids will also offer online access and mobile apps so parents and kids (if they're old enough) can see their balance.
But parents do not have to limit themselves to an account intended only for children. Some of the best savings accounts for your kids are online accounts with high interest and low fees. Many financial institutions allow a parent/guardian to open an account in their name for a child, even an infant, so it's never too early to save.
Encourage goal setting
Once you've created an account, you can help your child plan for their future by helping them set a concrete savings goal. Aside from the ultimate thrill of accomplishment, goal setting is important because it helps your children learn the importance of deferred gratification.
If kids learn to set goals and stick to them after delayed gratification, they can better understand the value of their purchases. This is especially important to them because of the temptations your children will experience in the coming years.
Many of the best savings accounts have mobile apps to help parents and kids track their money as they grow. Savers can also track their progress with a savings goal calculator.
Make Money
Instead of giving your kids an allowance, you can turn it into teaching time and give them money for doing their homework or completing it on time. You can also use it as positive reinforcement to reward good behavior.
For example, if your child passes a class test or wins a competition, you can give them an amount to reward their good performance. This will teach children that it takes effort to earn money.
Combine smart savings with smart spending
Part of teaching kids to save money is teaching them how to spend it. Consider integrating a savings account with a spending account or a mobile app that offers debit cards, budgeting capabilities, and the ability to allow a parent to track and limit spending.
These features let kids experiment with money and apply limits to help them manage their spending. When kids (and adults) feel like they're in control of their spending, it's usually easier for them to reach their savings goals.
Helping children learn to save is an important part of teaching personal finance. You can make kids feel comfortable with money and help them learn to balance spending they want to make now with saving for the future.
The Value of Money
Most kids' main problem is that they don't understand the effort it takes to make money. They cannot understand that adults have limited money and have to support their families with this limited money.
If you can teach your children the value of money from an early age, half of your work will be done on the spot. Use scenarios to teach them not to spend money, not to make impulse purchases, and to stick to a budget.
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