How to Promote Smart Savings Habits in Your Kids

2 - How to Promote Smart Savings Habits in Your Kids - Header ImageAs retirement savers know, when it comes to saving every little bit helps. But how can you encourage this kind of thinking with your kids?
The key is to start now and to tailor the vital importance of saving to each child – and their age. Read on for a few age-appropriate ideas to get started!

For younger kids

Use cash for purchases. Kids may not have so much experience with dollars and cents these days, considering that many of us use credit and debit cards much of the time. But seeing the trade-off between money and goods or services is a vital lesson money management.

If you can, allocate one of your budgets in cash and solicit your child’s participation in counting out the money and paying. The act of seeing cash leaving your wallet is much more illustrative than swiping a credit card!

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From recent college grads saddled with debt to wide ranging concerns about financial competence among consumers, there’s spreading worry that kids aren’t prepared for money management and decision-making.

Talk about your budget and the difference between need and want. Ice cream and candies are the big draws at the grocery store for most kids, but you also need to buy foods for dinner and breakfast. Talk about these trade-offs when you shop with your kids – not just in terms of health but in terms of priorities. The same can be applied to any number of areas.

For example, explain the limits of your shopping budget and why you’ve decided that your child can’t have that expensive toy or those pricey shoes. These are tough lessons to absorb, but hearing them repeatedly can help drive home the idea of prioritization (not to mention budgeting).

If you’ve tried the 3 jars method, you’ve likely talked about the benefits of saving. You can refine this lesson by discussing the distinction between short-term and long-term goals – for example, a special new toy versus college tuition. Having short-term savings goals can help support the habit of saving by providing tangible benefits in the near term, something that’s much easier to understand than the distant horizon of textbooks and fees.

For school-age kids

Ask for help in making smart shopping decisions and price comparisons. Whether you go analog or digital (after all, it does seem like more kids are familiar with smartphones than coupon cutting these days), kids can be an amazing resource for price comparison and shopping decisions.

On small purchases, ask for their help in finding the right discounts and coupons. On big purchases, like a new computer, talk about product characteristics and what you need versus what you want. Your child can offer research skills and may relish in the responsibility of being asked to participate in choosing a new TV or home computer.

Consider a matching contribution. For every dollar your child saves, offer 50 cents (or some other amount that makes sense for your family). By demonstrating the power of matching and compound interest, the match could radically change the dynamic of your child’s decision-making process.

But it might also surprise you! Maybe your child decides to save less so that their total savings contribution remains stable, while their spending money rising. Let your child take the lead in deciding how to use the match. That way, he or she will learn about the real effects of their choice.

Open a bank account together. At this point it could make sense to open an account just for your child – especially if he or she has amassed a fair amount in savings. The process of going to the bank and depositing the money can offer an important introduction to the financial system, and getting statements in the mail every month is both exciting for kids and offers a window into compound interest and the power of saving.

For tweens and teens

Now that your child has some experience under their belt, it might be time to let them take a more active role in managing their money. This could take the form of their allowance, of course, or you might expand their budget to include more of the “basics,” like clothes, toiletries, and personal goods.

Let your child allocate their money as they like – and most importantly, let them live with the consequences. If that means having to deal with an old winter coat because all their money went to concert tickets, so be it.

It sounds like a recipe for discord, but for some kids having a “training wheels” period like this can offer an invaluable learning experience in managing money – without the need for lengthy lectures, and without the risk of running out of grocery money (something many parents of college students have no doubt encountered).

Consider a debit or credit card. This is also a great time to educate your child about credit card usage, interest rates, and the vital importance of managing a credit score. You could help build your child’s credit by opening a linked account on your credit card, or you might go easy and simply let them take charge of their own debit card.

Either way, it’s important to have the conversation, and to show them the math – the consequences of credit card debt and a poor credit score are real. While the concept itself might seem vague, the numbers don’t lie!

Bring your college applicant into the financial aid discussion. Give your child a seat at the table in discussing the financial impact of college and in making the decision that best balances their preferences and the reality of your family finances.

How should any college savings accounts be used? What scholarships or financial aid packages are available? What are the potential long-term downsides of student debt? Giving your child a chance to contribute to these conversations, ask questions, and learn from you is very empowering and an object lesson in the complexities of managing money as an adult.

For all ages

Activities that foster an appreciation for time, effort, and delayed gratification can be very instructive to children of all ages. Depending on your child’s personality, you might want to try gardening, training a pet, or even more intensive activities like painting with oils, which requires planning, careful execution, and… waiting.

Of course, any activity that requires practice and patience to master can channel many of these same lessons. Encourage your child to seek out challenging activities, and support them through the process of learning. The benefits will last a lifetime.

Looking for more education tips for your child?

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From recent college grads saddled with debt to wide ranging concerns about financial competence among consumers, there’s spreading worry that kids aren’t prepared for money management and decision-making.

Let Us Help!

We can discuss this topic and more at a complimentary appointment. As a bay area retirement planning coaches, we can give you a review and make suggestions based on your retirement objectives.

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Important Disclosures

The opinions voiced in this article are for general information only. They are not intended to provide specific advice or recommendations for any individual and do not constitute an endorsement by United Planners.

& Associates Insurance Services or United Planners.