Remodeling This Life

This is a guest post from Miranda Marquit. She edits information on debt consolidation for DestroyDebt.com and writes about personal finances for Yielding Wealth.

One of the most valuable lessons children can learn is how to save money. This is a lesson that is not taught in schools, so it falls upon parents to make sure that their children learn about saving. I didn’t start teaching my son about money — really talking about it — until this past year, after he turned five. But I know some people who start talking about it when their kids are as young as three. It’s up to you when you start, but the earlier your kids start developing a habit of saving, the better. Here are some things that you can do to help your child learn about the importance of saving:

Give your child an allowance.

Choose an allowance that is appropriate for your child’s age, and give it regularly. I like to have a regular amount that I give my son that is not tied to chores (regular things he is expected to do — for free — as part of the family). But I also have more advanced and difficult tasks that he can do to earn a “bonus.” This allowance is the first experience many children have with managing their money. Start out by requiring that your children set aside at least 10% for savings.

Talk about the importance of saving.

When I spoke with my son about saving, I explained that some things cost too much money to pay for immediately. Sometimes we have to save up for what I want. Months earlier, we had allowed him to earn TV watching time, and labeled his movies with numbers that corresponded to length. When he earned enough “TV coupons” he could redeem them. I asked him if he remembered what he did when he wanted to watch the Incredibles. He thought about it, and told me that he looked at how many TV coupons he needed and then made a plan to set aside his coupons until he had enough to “buy” the TV time. I told him saving money was kind of like that. It’s setting aside money so that we have it when it is needed.

I also showed him, using actual money, how much he had left over after putting in the savings (and the donation for our church). “See?” I said. “Even after putting some aside, you have this many left.” He could see that the money set aside for savings was much less than what he got to keep to spend (or save up for a specific toy).

We also had a brief talk about interest, and how when you put money in the bank, the bank pays you to keep it there. He thought that was pretty cool.

Have a specific place to put the money.

We had a jar for my son’s savings. Putting the savings in a separate container encourages children to think about the separateness of their savings. When we opened a kids’ savings account at the local credit union, they gave him a cow bank (for his “moo”-la) for his savings. Now we make a big production of putting the money in this special place. When he has filled the cow bank, we take the money out, count it together and then go to the bank with his passbook. Having children involved at each step also develops in them an interest in engaging with their finances.

Create savings goals.

In addition to having a savings account, children should also see how savings goals can set for a variety of items. One way to do this is to talk about a specific toy that your child wants. Cut a picture out an put it on the wall so that he or she can be reminded that saving up is necessary. Make it clear that this type of saving up is different from the money that goes into the savings account. That money is for big things, later down the road, like college or living in a nice place “when I get old and want to relax all day.” Savings goals money is for smaller things that you want, but need to wait a little while for.

Another thing you can do is cut the picture into pieces, and write an amount on the back of each. If the item costs $15, cut the picture into 5 pieces with $3 on the back. Every time your child reaches another $3 set aside, put a piece of the picture up. When the picture is complete, take the money and go buy the item. I like to let my son pay for things he buys with his own money. (We do count up the coins and have them exchanged for bills first. But this is part of the fun.)

Set an example.

This is very important. Show your children that you save up, too. When we visit my husband’s family in New York, we put out a family “fun things to do in New York” jar. We show our son that everyone puts money in — even mom and dad save up. This also instills in him a sense of ownership of our vacation as well, and lets him see how we can all work together. We also tell him when we are putting money into savings, and I take him with me to the bank regularly so that he can that I am putting money in there. This is much easier for a five-year-old than trying to explain how direct deposit works.

If you start at an early age to help you child learn about saving, and the importance of saving up for things rather than just buying them, it will help him or her develop a habit that can be used throughout life.

June 26th, 2008 | Category: Finances | Subscribe to comments | Leave a comment | Trackback URL