Saving money is a skill that is important in life, but it is not always simple to do. In fact, according to a LendingClub report from 2021, up to 54% of American people were living paycheck to paycheck with little to no savings for unforeseen expenses. Families may fall into this trap for a variety of valid and necessary reasons, but it's crucial to help kids form the saving habit early on. When it comes to money, teaching kids about delayed gratification can help them prevent pointless spending and develop a value for taking charge of their finances. In light of this, here are 10 actions you may do to encourage your children to start saving.
Wants vs. Needs
Helping children discern between wants and necessities is the first step in teaching them the importance of saving. Describe how necessities like food, shelter, simple clothing, healthcare, and education fall under the category of needs. Wants are all the extras, such as candy, expensive shoes, the newest smartphone, or even theater tickets and popcorn. To make the point clear, you might even quiz them on things you have in your house. Point out goods in their kitchen or bedroom, for instance, and ask them if they need or desire them. This gives you the chance to discuss the notion that you should budget your spending wisely and set aside some cash for future needs.
Let Them Earn Their Own Money
According to a 2019 survey by the American Institute of Certified Public Accountants (AICPA), two-thirds of parents admitted to giving their kids an allowance, with children earning an average of $30 a week for five hours of chores. Allowing your kids to earn and save money gives them the chance to learn how to use it, which is something you want them to do as they grow up. They learn the worth of their labor when you give them allowances in exchange for chores.
Being told to save without being given a reason may seem meaningless to a child. Defining a financial goal with kids can help them become more motivated. Help them divide their goals into manageable chunks if they are aware of what they want to save for. Help them calculate how long it will take to attain a goal depending on their savings rate, for as if they want to buy a $50 video game but only receive $10 each week.
Give them their own savings vault
Your kids will require a location to save their money once they have a savings goal in mind. If they're a little older, you might want to open their own savings account at a bank or even buy them a kid-friendly debit card. For smaller children, this might be a piggy bank. Cards from companies like FamZoo, gohenry, and Greenlight let users set their own savings objectives and receive notifications when they make purchases.
Let Them Track Their Spending
Knowing where your money is going is a necessary component of effective saving. With a bank or credit card app, tracking expenses is a little simpler, but you may also do it the traditional way. Having your kids record their purchases every day and sum them up at the end of the week if they get an allowance can be enlightening. Encourage them to consider their spending habits and the speed at which they could achieve their savings goal if they made changes.
Give Them Savings Rewards
The company's matching contribution is one of the reasons people contribute to their employer's retirement plan. Who doesn't like free money, after all? You can use that same idea to encourage your children to save more if you're having problems getting them to do so. You may offer to match a portion of what your child has saved if they have a sizable savings goal, like a $400 tablet. As an alternative, you may give your child a prize when they meet a savings milestone, such a $50 bonus when they reach halfway.
Let Them Make Mistakes
Allowing children to learn from their mistakes is a crucial component of giving them financial autonomy. It's enticing to intervene and prevent children from making a potentially costly error, but it can be wiser to use that error as a teaching opportunity. They will then be aware of how not to handle their money in the future.
Act as Their Creditor
Living within your means is one of the fundamental principles of saving. Being your child's creditor can help you teach them a vital lesson about saving if they have something they want to buy but are impatient about saving for it. Let's say your kid wants to buy something at $100. You might "lend" the money and ask for interest-bearing repayment from the allowance you grant. The message you want to convey is that while saving might require longer periods of delayed gratification, the thing you want to buy will be less expensive if you wait. What not to do with their money in the future.
Talk About Money
In a 2021 T. According to a Rowe Price survey, 41% of parents indicated they dislike discussing money with their kids, with many citing embarrassment over doing so. However, you must foster an ongoing conversation if you want children to learn about saving. The trick is to keep the conversation going, whether you plan a weekly check-in to talk about money or include it into your everyday routine.
Be A Role Model
Only 59% of parents in the T. Rowe Price poll had any money set up for retirement, and only 55% had an emergency savings account. Being a saver yourself can aid in teaching your kids to save. You can encourage saving as a family activity by improving your emergency fund, starting a 529 savings account, or just boosting your 401(k) plan contributions. Additionally, you can elect to set aside money for a pool, big-screen TV, or family vacation.
- Saving money is a habit that parents can teach their children at a young age.
- The first step is to explain important concepts such as savings, a budget, and goals—then keep the conversation going.
- Giving children an allowance can teach them the value of money—and of hard work, if chores are involved.
- Younger children might keep their savings in a piggy bank, but older ones might want to keep their money in a bank or on a debit card while working on their goals.
- Children can learn the importance of living within their means, which is one of the basic tenets of saving.
By giving children a place to save, you can encourage them to set away some of their money. For younger children, that can mean getting them a piggy bank; for older children, it might mean letting them create a bank account or acquire a debit card. In order to encourage people to save money for the future, you can also pay interest on the money they save. According to research, many parents are hesitant to even bring up money with their children. a T. 2021 survey 41% of parents avoided having those dialogues, according to Rowe Price. Parents must find a method to bring up money-related topics in the family in order to teach their children appropriate financial habits.
Younger children can be tested on household products like toys, clothes, and culinary utensils and asked whether their family actually needs them or just wants them. By making that distinction, children begin to understand that some purchases should take precedence over others. Making saving a regular part of your child's routine as a parent can set the stage for a prosperous future. Young children who are raised with good habits have a higher likelihood of becoming financially stress-free adults than those who did not have this type of upbringing.