There are plenty of people who believe that “saving” for the sake of “saving” is bad practice. Many have had grandparents that encourage spending while you’re young. And while everyone situation is unique, the reality is learning to save money affords more opportunities.
Yes, inflation is worsening; yes, the cost of goods has increased asymmetrically to the minimum wage increases; and yes, real estate costs more — in some cases, owning a home has become untenable. Even before all this, in 2017 it was reported that over 2/3rds of Americans could not afford a surprise bill of $500 or more.
The solution is not simply “make more money” or “move somewhere cheaper”. It’s prioritizing expenses. Children who learn to save when they’re young have an advantage growing up. Here are steps they can take to teach children how to save money.
Have conversations with children about money
The first step is to discuss money. This can start as early as 5 years old as kids begin to understand the exchange of goods/services. Teach them how it affects them before they ever make any money themselves. Some financial advisors have recommended asking kids hypotheticals. Start with “what do you want to buy when you’re older?” or “If you had a hundred dollars what would you spend it on?” These open-ended questions can form a foundation for kids to understand what the value of a dollar is.
For example, if their response is “I’d buy a puppy,” then it begs the question as to how they’ll afford food, toys, a leash, and vet appointments. This can help shape their understanding of a one-time purchase vs recurring charge.
Identify a good savings account
Although it depends on the child, typically paper money isn’t the best way to teach your kid about saving. Paper money can get lost and keeping it in a piggy bank or shoe box teaches more about safe keeping than it does about saving.
To capitalize on digital, give your kids access to view their money in a savings account. So long as they can earn revenue, they’ll be able to watch their money grow over time. Earning interest can help kids and young adults to understand the idea of compound interest.
While picking a savings account for your child, search for one that has little (and preferably no) monthly charges. And find something with a high return.
Encourage them to set goals
Many parents are familiar with the marshmallow test, wherein you offer the child a marshmallow and set rules. If they eat it while you’re gone, that’s it, however, if they wait until you return, then they can get two. Many children pass the test as early as 2 years old. They understand the concept of setting goals so it’s important to compound that lesson.
Setting goals is essential as it helps children learn the significance of postponed gratification.
Match saving with spending
Part of educating children on how to save their money is educating them on how to spend it. Think about complementing a savings account with a spending account or an application that allows parents or guardians to restrict or observe spending.
These features enable children to explore with money and enforce restrictions to assist them with dealing with their spending. Once children (and adults) have the discipline to control their spending, they find it easier to reach their goals in savings.
Supporting children to learn how to save money is a significant part of cultivating personal finance. It can enable children to feel comfortable with money and assist them in figuring out how to adjust how they’re spending to achieve long-term goals.
Sure “more money” can help, but if spending habits aren’t formed early, it can turn into an ever-ratcheting problem. If your kids know how to save, it’ll reduce stress and prepare them for the future. For instance, they don’t need to be stuck in a job they hate if they have the savings to afford them time to quit and find a new job.