Understanding saving from a kid’s view

What better time to think about saving than during America Saves Week, February 19-26? What does the word save mean to you? More importantly, what do your kids think when they hear the word save?

Saving by not spending

Saving, according to the dictionary, is to avoid spending. So, by not spending, we keep more money. I might say, “Instead of spending money for a movie tonight, I decided to save my money and read a book.

Let’s remind ourselves that kids generally have money because we give it to them with few strings attached. Even so, a 10-year old can make a decision to not spend today because he wants to do something that costs more next week. A child may not consider this a form of saving, but rather a method to get what he really wants–something that costs more than he has at the time.

Saving while spending

Another way to save money is to not be required to spend as much for a specific purchase. In this case, one might say, “I saved $25 when I bought this coat. It was marked down from $100.”

In reality, I didn’t spend as much because the timing of my purchase resulted in a marked-down price. When I tell my husband how much I saved while shopping, his standard response is, “You’ve got to spend money to save money!”

Because children generally spend money simply because they have it, they don’t pay much attention to sales. While in a store, they might see something marked down and immediately decide they want to buy it simply because it costs less, even if it isn’t exactly what they want.

This form of saving is really a spending decision by a child; it doesn’t put any money aside for a future purchase. It’s just a reminder from the seller that the price is less today than it could have been.

Saving by accumulating money

The action of setting money aside for a future purpose, such as a vacation, is another way of not spending. To save for my vacation, I may decide to purposely put $50 a week into a savings account.

As often happens, I may change my mind and decide that the money would be better spent on a new set of tires for the car! In either case, I deferred spending so I could spend the money in the future

There are many reasons for long-term saving or investing, retirement perhaps being the most important. What is required is the discipline to live on less than one’s income, thereby allowing a portion to be put aside for the future.

Kids and saving

Of these three variations of savings, parents are most inclined to encourage their kids to start accumulating of money for a distant goal. As parents we think of long-term goals, such a vacation, a house, or for retirement. With our kids we most often encourage them to start saving for a long-term goal such as college.

As well-intentioned as this is, when parents require that their children save a certain part of their allowance for long-term things like college, kids simply write off that money as still belonging to mom and dad. They don’t really believe it was ever theirs in the first place.

The money simply disappeared. Not only did the money disappear, the thought of ever being able to spend it is completely out of a child’s perspective. Because the child never really owned the money, isn’t really making the decision, and doesn’t know what college is, the money never really existed.

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. A child also has to feel ownership of the money. Regardless of how we try to encourage long-term savings, in a child’s world it’s all about me and all about now.

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.

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 that they saved (by not spending) to reach their goal.

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.”

As parents, you will be surprised how your kids’ attitudes about money will change when they own the money, make the decisions and learn from the results.

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