Making saving meaningful for kids

A billboard for a local bank shows a happy parent saying, “They encouraged my kids to save.” For many parents, the concept of saving is one of those good values we want to instill in our kids. But what does saving mean to a kid?

Financial institutions tell us that money will grow in a savings account. However, at current rates if your child keeps $100 in a bank for one year, she will earn a few pennies. Not much incentive.

A better way to encourage saving involves helping your kids make money decisions at home with their allowance. When your child is deciding how to spend her allowance, you can start a conversation about the value of not spending all of it. A child can understand the idea that to not spend means there will be more money to spend in the future. So in a child’s mind, saving is the act of not spending.

When we talk about kids and money management skills, saving is a decision, a part of the process. Kids can decide to not spend when they understand the reason for not spending. A kid can say, “I didn’t spend this money on this now so I can have more money later to buy that.”

Parents can do several things to encourage this spend or save decision-making. Here are some suggestions.

Keep the time frame short

For kids the time from now to later has to be relatively short. Saving today for a movie next week makes sense to a kid. However, saving today for college years 10 in the future is not rewarding for several reasons: 1) a kid doesn’t know what college is, 2) doesn’t know how much college costs and realistically will never be able to save enough to matter, 3) to a kid 10 years might as well be an eternity.

Retrain spenders and hoarders

Kids generally have the freedom to decide how to spend, or not spend, their money. Because of this kids can become either spenders or hoarders.

Spenders want instant gratification. Hoarders treasure their money and don’t want to let go. Unfortunately, adults don’t have the option to spend or hoard; adults have to pay the bills and figure out how to save money for future purposes

As parents you help your kids learn to make decisions by requiring them to have certain spending responsibilities. This teaches spenders that they can’t use all their money for fun stuff. Hoarders learn that they have to spend some of their money for responsibilities whether they want to or not.

Leave the final decision to the kid

When your child doesn’t have enough money for something encourage him to not spend this week and wait until there is enough money. Praise his decision-making, as he not spends to attain his goal.

Whatever the goal let him make the purchase. Remind yourself that your kid owns the decision. This may go one of two ways.

Your kid says, “Now that I have the money I don’t want to buy that,” or “Now that I have the money I want to buy X instead.” These are both reasonable kid decisions.

Caution: Parents may want to reward their kids efforts by saying, “Now that you’ve saved all that money, I’ll pay for it so you can use your money for something else.”  This shows your child that by not spending he can get you to buy it instead. This is a common unintended consequence of what parents think of as a reward for saving.

Require contributions to shared expenses

Negotiate with your kids on some shared expenses, such as camp or lessons. Tell your child that you will match his contribution. He may have to not spend to reach that goal.

Caution: Only do this if you are prepared for him to decide to not participate. If he doesn’t want to contribute his share, he wasn’t really interested. You both save money!

Having a savings account at a bank is a good experience in itself for a child. However, by encouraging your kids to learn how to not spend their money, they are learning how to make the type of day-to-day decisions that will face them in the future when they are on their own.

Next week we’ll look at some ideas for talking about long-term savings and investments with your kids.

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