As a parent, you want what’s best for your children — and that includes money. Helping your children develop good money-saving habits at a young age will provide them with a foundation to carry into adulthood. But in today’s instant gratification culture, how can you teach kids to save their money rather than spending it immediately?
Whether your kids are toddlers or teenagers, here are several ways you can start teaching them to save.
Teaching young children how to save
One of the best things you can do to teach your children how to save is to start early. That way, they have almost their entire lives of good money habits to build on, instead of having to undo bad habits and then build good ones from there. The savings lessons will change as your children grow, but there are a few things you can start teaching them at a young age.
Let them earn money
The first lesson in teaching your kids how to save money is teaching them the value of money. And one of the best ways to do that is to have them earn their own.
Many parents give their kids an allowance — a certain fixed amount of money per week — hoping that this will inspire some sort of consciousness about money in their children. However, this can be ineffective, because rather than teaching children how to earn money, it teaches them that no matter how much or how little work they do, they’re going to get the same amount.
Instead, tie the allowance to the amount of work they do around the house. When they are very young, the tasks can be simple–picking up toys or cleaning their rooms. As they age, the chores can increase in difficulty, and the payout can increase as well.
Use the jar/envelope system
After kids have an idea of how to earn their own money, they need help deciding what to do with it. They might want to spend it all at once, but that’s where the jar or envelope system comes in.
Take two to four jars or envelopes and label them “Spend,” “Save,” “Give,” and “Invest.” You don’t have to use all of the categories, but at least have “Save” and “Spend.” Then encourage your kids to divide their allowance into the jars or envelopes.
The Spend jar is their money to do with as they wish (within reason, of course). The Save jar is money being saved, usually put toward a specific end goal, like a bicycle. The Give jar should go toward a charity of your child’s choosing. And the Invest jar goes toward stocks or other investments.
Use concepts they can relate to
Children tend not to save money because they don’t feel they need to — they don’t know how much things cost. So it’s important to talk to them about money to help them grasp the concept a little better.
For example, if your child wants a toy — even if you are going to buy it for them — show them how much the toy costs and explain how long they would need to save their allowance to purchase that toy themselves.
This will help them start to understand the purpose of saving money by showing them that some of their favorite things might take some time to save up for.
Determine a savings goal
Once your children have a better understanding of how money works, help them set a savings goal so that they can buy a toy or something else they want for themselves. This should be a real purchase with no additional contribution from you.
Very rarely do people — children or adults — save money with no end goal, so showing them how to save to meet their goals is a crucial step in teaching them about money management.
Teaching teenagers how to save
As your kids get older, they start to push for more independence. You can encourage this by giving them more independence in their money handling. Even if you haven’t been teaching your kids how to save up to this point, it’s not too late to start some valuable lessons.
Encourage your teen to get a job
Once your kids are about 15 or 16 years old, you should strongly encourage them to get a part-time job. One way to do this is to cut back on or completely stop their allowance.
A part-time job further stresses to them the value of money, but this time it’s in a real-world setting. Their boss probably won’t be as forgiving as you are when they don’t do the job correctly. They really have to earn a paycheck. This not only gives them pride in their work, but also makes them think more about what to do with that money.
Stop paying for everything
Once your teenager has a job, it’s time that they start paying for certain items themselves. This doesn’t mean having them pay for their own living expenses (food, rent, etc.), because that will teach them simply to live paycheck to paycheck, rather than to actually save any of their money.
But, having them buy some of their own clothes as well as their own video games and other non-essential, fun items is a good start. Because they really want these items, if you deny them funding, they are going to be more likely to save up to purchase them.
Open a savings account
Instead of the jar/envelope system, or maybe even in addition to it, you can open up a savings account in your teenager’s name. If it’s a joint account, you’ll be able to monitor it to see how much they are saving and how much they are taking out. If their saving habits look worrisome, talk to them about it and try to encourage them to save more.
You can also encourage them to allot a certain percentage of their paycheck to go into their savings account. Most businesses include this as an automatic option, and it’s a great habit to start as a teenager. By the time they get a full-time job, putting 10% (or any other amount) of their paycheck into savings automatically will be just a normal thing for them to do.
Work with them to set a budget
Since your teenager will be taking on more responsibilities financially, it’s important that they know how to budget properly. Work out any necessary expenses that they have to pay (gas, car insurance, cell phone bill, etc.), what they should be saving, and then what’s left over for entertainment.
Your teen’s budget will be a lot less complicated than an adult’s budget, but teaching them this basic skill will lay a good groundwork. If they have an exact amount for what they can spend on entertainment, they’ll be more likely to stick to it so they can meet their savings goals.
No matter what age you start teaching your kids how to save, it’s important that you keep at it. Telling a child or a teenager how to do something only once or twice isn’t going to make those lessons sink in. The key is consistency.
Offer incentives to save
Whether your child is 7 or 17, they will be more likely to save if they are enticed to do so. There are several ways of doing this. You can match your child’s savings contribution, either in the appropriate jar/envelope or directly into a savings account. You can also buy them small items as rewards when they reach certain savings goals.
While incentives like these don’t exist in the real world, they do teach your kids that it pays — sometimes literally — to save.
Talk openly about money
Talking openly about money is one of the best ways for your child to learn. If they can see how you handle money, they can mimic what you do right and even learn from your mistakes.
Show your children your budget so they can see how much money is allocated to bills, groceries, entertainment, and so on. This will not only help them create their own budget in the future, but it will show them how much bills and real-world, adult expenses cost.
Some people might be uncomfortable sharing this information because they don’t feel like they are very good examples. In that case, make a mock budget with your children to demonstrate a hypothetical salary and hypothetical expenses.
These money conversations should be non-confrontational and non-judgmental. Bills can feel like an overwhelming burden, but talking to your kids about them should not be. For example, don’t make your children feel like they are adding to your financial troubles, because then they’ll worry about that instead of absorbing the lessons you have to teach.
Set a good example
One of the best things you can do is to set a good example for your children to follow. Have your own jars or envelopes that you use so they can see how it’s done. Show them the ways that you save money, even if it means showing them how you manage your savings account. Talk to them about your own savings goals and how you’re reaching them.
Children learn a lot from the examples their parents set for them, and that most certainly includes money habits.
Teaching kids good spending and savings habits early will help them throughout their lives. And it might even encourage you to kick some of your bad saving habits so that you can give them a better example to follow!