A long-term look at kids and savings

Last week’s blog addressed the concept of not spending as a form of saving. This is a good learning experience for kids who, by nature, have short attention spans. The idea of saving for something next week or next month makes sense because it is within a kid’s perspective.

How can you possibly talk about long-term savings with a kid who can’t see past next year or even next week? Should you even bring up the subject? Your kids will hear conversations about “saving for college” and “saving for retirement.” Kids, however, have no perspective of what college or retirement is in terms of money, or even where such things fit into the span of their own lives.

Even though college, working and retirement is far, far outside a child’s perspective, there are some things that parents can mention now and then to help their kids understand what lies ahead. Here are some ideas about how to frame those conversations you might have with your kids over the years.

Let’s start by defining one’s money in three stages. When we think about a person’s life we can see differences in how money is received and spent during three phases: childhood, adult working years; and retirement, or non-working years.

This framework can give you a guideline for talking your child about what is going on money wise in these three stages. Obviously a child can’t comprehend all this at one time, but there will be times when you can ask a question to see what your child thinks.

Money in childhood. Ask your child, “Where does your money come from?” Have your child make a list. This may include allowance, gifts, money for chores, and maybe, part-time work for older kids. Then ask them to list what they spend their money on.

Money in adulthood. Ask your child, “Where do adults get their money?” Have them make another list of people they know and how they earn their living.

As a parent, you can write out your long list of expenses, such as, housing, food, clothing, transportation, medical expenses, utilities, and taxes. These are necessary expenses that parents pay along with managing money for family activities, entertainment and savings. Make a point of comparing adult spending with kid spending.

Money in retirement. Ask your child to make a list of people they know who are retired. This may include grandparents, other relatives or neighbors.

Explain that when someone is retired they no longer receive a paycheck, yet they still have expenses and bills to pay. Retired people get their money from pensions, Social Security, and their own savings and investments.

During retirement people may say they are living on a fixed income. You can explain that much of this money is received in fixed amounts that don’t change very much. That can be why decisions to spend or not spend become very important.

You can tell your children that you too will someday retire. You might share what you are doing to save for your retirement. Point out that employed parents have to use their money for both present and future needs.

Like many stories this one has a beginning, middle and an end. You are helping your child see that people are in different money stages during their life. During each stage there are different reasons for spending and not spending.

Your child is just beginning his financial journey. In a kid’s mind, the very act of not spending is saving, a big lesson in itself. You offer your child a good learning experience by letting them set short-term savings goals.

Encourage them when they decide to not spend. Praise them when they reach their goal. Let them experience the good feeling that comes from spending their own money which they saved (not spend) to reach their goal.

During childhood a kid will have many opportunities to say, “I want to save my money for that.” As they grow and manage more money and responsibility, they will have confidence in their ability to not spend with a definite purpose in mind. This decision-making is a habit they can carry into adulthood.

One of the best pieces of advice you can give your adult children is to start putting money aside for retirement with the first paycheck. A good motto is, “Some is better than none. Earlier is better than later.” Even a small amount of money not spent can make a difference, whether it is for the short term or for a goal in the far distant future.

Follow me on social media: