There is more to teaching children about money than just giving them pocket money. Teaching children to save and the value of money is one of the most important lessons parents can inculcate in their children.
Lessons about how to manage and save money should start when children are of tender age so that they grow up with the notion that money is not only for spending but for saving and investment.
According to a 2016 National Foundation for Credit Counseling survey, just 56% of adults give themselves an A or B when grading their financial knowledge, making the financial education of the next generation even more urgent.
Saving money is a habit that can take time to build, and even some adults have yet to master it. Consider this: Just 41% of Americans have savings set aside to cover emergency expenses, according to Bankrate.
Parents are more likely to talk to their children about having good manners and getting good grades than the importance of saving money, according to results of research recently published in Business News Daily.
The same study found that parents generally wait until children are 10 or older before talking to them about the importance of saving.
The vice chair, American Institute of Certified Public which conducted the research said, based on their findings, parents seem more concerned about the politeness of their children than their financial fitness.
Warren Buffett, an American business magnate and investor said, “Do not save what is left after spending, but spend what is left after saving.”
Some tips on teaching children how to save money
Discuss Wants vs. Needs
The first step in teaching kids the value of saving is to help them distinguish between wants and needs. Explain that needs include the basics, such as food, shelter and clothing, and wants are all the extras. Use your own budget as an example to illustrate how wants should take a back seat to needs in terms of spending.
Let them earn some money of their own
If you want your children to become savers, giving them their own money provides them with the opportunity to learn how to use it. When you offer allowances in exchange for chores, they’re also learning the value of their hard work.
Help them set savings goals
To a kid, being told to save without explaining why may seem pointless. Helping children define a savings goal can be a better way to get them motivated. If they know what it is they want to save for, help them break down their goals into manageable bites.
Give them a dedicated place to save
Once your children have a savings goal in mind, they will need a place to stash their cash. For younger children this may be a piggy bank, but if they’re a little older, you may want to set them up with their own savings account at a bank. That way they can see how their savings are adding up and how much progress they’re making toward their goal.
Encourage them to track their spending
Part of being a better saver means knowing where your money is going. If your children get an allowance, having them write down their purchases each day and add them up at the end of the week can be an eye-opening experience. Encourage them to think about how they’re spending and how much faster they could reach their savings goal if they were to change their spending patterns.
Offer savings incentives
One of the reasons people save in their employer’s retirement plan is the company matching contribution. After all, who doesn’t like free money? If you’re having trouble motivating your children to save, you can use that same principle to ramp up their efforts.