Getting your kid to consistently save their money can be a daunting task.
It’s far too common for our little ones to get distracted and spend on random things spontaneously, causing their savings to return back to zero.
That said, it’s absolutely crucial for parents to teach their kids how to save. This not only sets them up for success later in life, but it also eases your financial stress too.
If you need help, we got you. We’ll outline some steps to help your kids get into the habit of saving and improving their financial literacy in this article.
Let’s jump right in!
1. Educate Them With Money Matters
A lot of parents shy away or simply ignore talking about money to their children. Whether it’s rooted from embarrassment or indifference, as much as a third of all parents make it a point to avoid bringing up money matters to their little one.
While navigating financial topics can certainly be tricky, it’s crucial for families to discuss money matters on an ongoing basis. Educating your kid about the best ways to handle finances early is paramount to set them up for success later in life.
Furthermore, educating your kid could also help uplift your present financial situation, granting your kid the knowledge to manage their finances effectively and taking the financial burden off your shoulders.
That being said, a good chunk of money topics may be too complex and nuanced for a kid to fully understand. Fortunately, you can start simple at first by teaching them the concept of saving money.
Simplify the concept by providing real-life examples of the benefits of saving. This can include holding off on impulsive purchases in favor of a big one towards the end of a period.
By constantly teaching your child about money matters, they’ll gain confidence and better abilities to make informed decisions with their finances. In turn, this can pave the way for smarter life choices and a better quality of life in the long run.
2. Differentiate Needs and Wants
In your quest to teach your kid how to save, you need to touch upon the differences between must-haves and nice-to-haves. Kids can be understandably impulsive at times, wanting to get the latest toys or eating at the best food chains in sight.
However, if you want them to remain disciplined in the face of these temptations, it’s important to educate them on the difference between what they need and what they want.
Begin by listing the items needed for everyday survival and to secure the future. Food, clothing, shelter, and education are essential points to list here. Teach them that it’s crucial to prioritize spending in these categories before anything else.
If the kids happen to have a money surplus after spending on the “essentials” category, they can then use it to spend on their wants. This can range from video games to dining out. Of course, you can also teach them to hold off on spending to improve their financial health later on.
A good way to instill this concept in their head is by giving them money and a play scenario wherein they’re managing a fund themselves. A hands-on approach makes them more likely to drill the concept into their heads—making it a habit that they can continue on for the rest of their lives.
3. Be Firm in Your Allowance Funds
If you want your kid to become a disciplined saver, then you have to exercise discipline when giving them an allowance too. Don’t let them perceive you as a neverending piggy bank—this can cause them to slack off and feel entitled to your hard-earned money.
Instead, establish a strict and fixed allowance fund arrangement. Refrain from giving them more than their weekly or monthly share unless it’s truly needed. In doing so, you’re relaying to your child that money isn’t easy to get and that they’ll have to be disciplined with their money habits if they want to achieve their savings goals.
In making these arrangements, it’s likely that your child will return to you with an empty balance before the next allowance day. Instead of handing them money straight away, use this moment as a teachable situation to help them develop better money habits.
For example, you can teach them to avoid making unnecessary or excessive purchases like bubble tea or a new dress if money is tight.
If they really need money, then tell them that they’ll have to work for it, like doing extra chores around the house. By doing this, you’re letting your child know first-hand the value of money. This can give them the discipline to save more and become more independent with their fund handling.
4. Start With a Piggy Bank
It’s essential for parents to use all the resources at their disposal to give their kids a shot at improving their money management skills. One great tool to facilitate this is a piggy bank or a savings jar.
This item is great because it grants your child a place to store spare and loose change and build their wealth over time. Unlike a bank account, a piggy bank or savings jar offers tangible (and in some cases, visible) progress. This can make children more motivated to keep up their money-saving habits naturally.
Teach them how to use the piggy bank once they receive it for the first time. One important method is by teaching them the appropriate timings.
Typically, they can store money as soon as they receive it. This can come in the form of gift money, a portion of their allowance, or pay after working around the house. Once the money has reached the top of the jar or piggy bank, then they can collect their money, fulfill the goals set for the money, and repeat the saving cycle.
By getting a savings jar, you can easily uphold a savings habit in your child. In turn, this can lead to a natural inclination towards saving and better financial well-being for them in the long run. See this link for more information on how to encourage your kids to save.
5. Create a Savings Account For Them
While a piggy bank helps store money and loose change, it’s also essential to open a bank account for your kid. A savings account introduces them to the banking system and the concept of earning interest on their deposits.
If your child is older, consider taking them to the bank when you’re opening their account. This will familiarize them with the process and make them less anxious about going there on their own in the future. Furthermore, it also gives them the ability to learn more about deposits, withdrawals, and other banking processes.
If your child has any questions regarding the banking process, fill them in on it. Teach them that putting money in the bank can grow their funds passively through interest. Let them see the monthly interest earnings in the bank’s cheque book for themselves.
Want to go the extra mile? Consider opening a time deposit account to store their money. This can improve the interest rate even further and can help grow a child’s savings in the medium to long term, helping alleviate inflation and future costs of goods.
By familiarizing your child with the banking process, you can get them into the habit of saving more effectively.
6. Set Savings Goals With Them
Your child will certainly have wants that cost more than what they may have in their wallets. Use this opportunity to teach them the importance of saving up to achieve their respective goals.
For instance, let’s say that your kid wants to get a new tablet for $500. If it takes five weeks of allowances to reach that amount, then encourage your kid to save $100 a week to achieve their goals. If their allowance doesn’t cover that, then encourage them to earn money through chores or selling their items online or in a garage sale.
Reverse engineering their goals and creating micro-goals can help them visualize the impact of their financial behavior, motivating them to stick with their goals more effectively.
Need a tool to help you out? You can consider building and utilizing a kid-friendly budget tracker to help them visualize their net worth and transactions. This gives them the data to reach their desired outcome in a more meticulous and guaranteed fashion.
Good luck teaching your kids about financial literacy!