Savings: Kids vs Adults?

The message during this, America Saves Week, is to spend less than one’s income and save the rest. Sounds simple, doesn’t it? The problem is that we’d rather spend money than save. How does spending and saving relate to our kids and their money?

Let’s start with looking at how adults save money. For U.S. households the personal savings rate was 4.3 percent in 2009. That means, for every $100, we spend more than $95 and save less than $5.

When we give our kids money, let’s say $10, they would mirror our example by spending $9.50 and saving $.50. But we expect them to do better so, on advice of many allowance experts, we instruct our kids to divide their money into four categories: spend, save, invest, or donate.

For purposes of comparison, spend and donate are forms of spending, while save and invest are forms of saving.

In looking at what parents report about allowances, the percentages of spend and save vary widely. Here are some examples of allowance amounts and how parents instruct kids to allocate the funds.

Allowance of $10 a week divided into $4 spend, $2 save, $2 invest, and $2 donate.
This breaks down to 60% (spend, donate) and 40% savings (save, invest)

Allowance of $3.50 per week equally divided between spending, saving and charity.
This breaks down to 66% (spend, charity) and 33% saving.

Allowance of $5 per week, $2 spending, $2 savings and $1 charity.
This breaks down to 80% (spend, charity) and 20% saving.

What then do we know about kids, spending and saving?

Most kids are instructed on how much to save (or donate). The decision is made for them. While parents believe this is instilling a good habit, kids are only “playing the game” with someone else’s rules. It is not their habit, so they rarely take it with them into adulthood.

Kids are often expected to save a much higher percentage that adults do. Again, parents are hoping to teach their kids the value of saving, but there is a reason why adults don’t save at the same rates they expect of their kids–expenses.

Kids have no requirements to balance money choices for both expenses and saving. This puts them in a make-believe situation that will not be there when they become adults and have to pay their bills. Next week, we’ll look how parents expectations for their kids to save money sends a mixed message, and how you can change that message.

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