To spend or not to spend, that is the savings lesson for kids

When parents describe their kids’ money habits to me, they quickly label them as either a spender or saver.  Granted, spending and saving are the either-or when it comes to money. But being all one or the other is not the best preparation for managing money as adults.

If we applied the same labeling to automobile driving, parents might say that their teen is either fast driver or a slow one. Obviously, neither technique will work every for every driving experience. So it is with money.

Kids need to balance spending and saving. In the adult world they will someday inhabit, spending and saving have to work together in their best interests over the long-term.  However, when parents direct their savings decisions they are learning to obey instructions.

Just as kids learn to adjust the pressure on the gas pedal, they can also learn to adjust their spending and saving activities. Here’s the caveat; the kids have to be in total control of their money, just at they are in control of the gas pedal.

It’s important to put saving in terms that kids can relate to. In the most simplistic terms we can define saving as “the act of not spending.”  In the adult world, we might call this deferred gratification. When kids are in control of deciding to spend or not to spend they get hands-on practice with deferred spending.

For a spender the decision to not spend goes against a natural inclination to buy and acquire. For a kid who is a saver, there is no real-world requirement to spend, no expenses to cover, so no need to make an adult-like spend or save decision. Consequently, a spender doesn’t want to save, because spending equals fun and new stuff.

When we translate this to the adult world, we can see that one might save money today to be able to spend money later, for a vacation, a house, or for retirement. However, to a kid these are too far out in the future to be real. For a kid, it’s all about me and all about now.

When parents demand that their children save a certain part of their allowance for long-term things like college, kids simply don’t think of that money as theirs; it still belongs to mom and dad. For kids to understand the concept of savings, the action of savings and the result of the savings need happen in a shorter time frame.

This is where parents can provide guidance with a system that encourages kids to spend and save in a way that lets them see the result of their decisions. To make the lesson meaningful, parents can create an environment where their kids can experience the real-life push and pull of juggling spending and saving.

An allowance system as explained in The No-Cash Allowance puts kids in control of their own money that has to be used for both fun spending and for real expenses. Kids receive minimal, yet constant, funding from parents while being expected to pay for some of their expenses.

By being required to pay for certain things, and still wanting to buy other stuff, kids are naturally forced to adjust their money decisions. Kids are forced to think, “Should I spend for this now? Will I have enough for next week’s expenses.” The same concept will work with both spenders and savers.

As parents, you will be surprised how your kids’ attitudes about money will change when you turn the driving over to them.

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