Establishing good saving and spending habits in your kids at an early age may not be as difficult as you think. It will require a little due diligence on your part but is well worth the effort in the long run. The following tips along with a running dialog can help you jump-start your kids onto the road to financial security.
1. Match their savings dollar for dollar or quarter for dollar. What better incentive for kids to save their money than for them to know that for every dollar they put away, it will be matched by a given amount. It’s kind of like free money. Okay, so it may not be free for you, but you’re helping establish the habit of saving and, in the long run, it will have been worth the extra money you had to put up.
2. Give them interest on their savings. This is another example of free money. And depending on where the interest comes from, it may even be free to you. Opening a savings account at a bank or credit union will usually mean your child will receive interest/dividends on his balance each month. But keep in mind that this interest is typically not a whole lot, especially for the kind of balance a young child may have. And not many kids get excited about seeing 12 cents deposited in their account. So consider setting up your own interest payment plan for your child’s monthly ending balance. Ten dollars earned on a balance of $100 (10% interest) is a lot more appealing than 10 cents earned. And you can vary the amount of interest you give as their balance grows. Which leads us to the next category..
3. Illustrate the power of compound interest. Show your child what can happen to her money over time if she saves it and is earning interest on it. This is called compound interest, the building of an account s value on itself. You’ll probably have to go out several years for her to get the full impact of this compounding. A great way to visually illustrate this is through a software program called KidsSave by Kidnexions. Included in this virtual savings program is a section where kids can experiment with different savings scenarios to see what happens to their account money over time. Kids get to see in graph form the curve that is made through compounding interest which can be a very enlightening experience even for adults!
4. Give them an allowance. An allowance is a popular way to get money into the hands of kids. Most parents consider an allowance as an earned salary for doing chores. But once you hand over the money, how do you keep kids from spending it all? Consider having your child save a portion of it; the rest is theirs to spend. That way we get our cake the saving and your child gets to eat a slice of it the spending.
5. Have your child set up a personal financial goal. Give your child a concrete reason to save. That really cool pool toy that he just has to have. Help him create a plan to save the money to buy the item himself. Maybe you could match him dollar for dollar. But whatever you do, start simple. Make sure the goal is easily attainable and make it happen in a relatively short period of time. Attaining success quickly will increase the chance he will want to set up another goal, at which point you can increase the time or the amount they need to save.
And, of course, kids are notorious at watching what you do when you re not looking.
If you model good saving and spending habits, chances are, your kids will probably do the same.
Karyn – Mom of 2