This post is the 2nd in a short series of blogs about teaching your kids good money management. If you haven't read it yet, you may want to start with Part 1 – Teaching Your Child About Earning Money.
People like instant gratification. It can be hard to learn that “good things come to those who wait.” Teaching your child about saving money from an early age will set them up to be able to achieve some of the larger goals they will have later in life including buying things like cars and houses or saving for things like vacations or retirement.
Teaching Your Child About Saving Money
The first step to teaching a child how to save money is to help them understand the difference between needs, wants and wishes. It’s difficult for them to understand that all money can’t simply go to things they want. This is a lesson that will take some time to sink in. Helping a child to prioritize their wants, however, will be good practice when it comes time for them to make difficult decisions on their own in the future.
Use The Piggy Bank
When giving a child allowance, make sure that you are breaking out the total into smaller bills or coins. This will encourage them to divvy it out (some for savings, some for spending, etc.). For children under 10 years old, buy them a piggy bank of some sort to get them on the right track. The Money Savvy Pig is a great example because it is see-through and there are 4 slots; Save, Spend, Donate and Invest. Allowing your child to see their money and giving them the chance to split things up at the beginning may help with their decision-making process. To encourage your child to make more mature decisions, consider matching fifty-cents on the dollar for everything but the “spend” category.
After the Pig
For children 10 and up, consider taking them to the bank and involving them in the process of opening up a checking or savings account. This will give you the opportunity to teach them how to balance their checkbook and will wean them off of having to see the physical cash in order to make good decisions.
Once your child reaches their teenage years you may want to begin teaching them some of the finer details of personal finance. Consider getting a debit card for their account. Leave off the overdraft protection so that they will learn their lesson if they take out more money than they have. This is also a great time to teach them about how interest works and the values of investing. Opening a mutual fund for them will give them some good practice. Who knows, it may even be the first step toward financial independence.
When it is time for them to make these decisions, talk things through with them to help but don’t be too pushy. Allow them to make the decision on their own and be prepared for them to make some bad ones. It is important that you let your child make mistakes and learn from them. If they spend all of their money and come to regret it, don’t bail them out. These are the moments where they will learn the most.
To learn more about teaching your kids good money management, continue to Part 3, “Teaching Your Child About Spending Money Wisely.”