Teaching your children to save at any age

How many times have you told your children that money doesn't grow on trees? Probably way more than you ever thought you would! But are they listening?

Capturing their attention can be difficult enough to do already, and it can be even more of a challenge to teach them about saving when all they want is more, more, more—now. However, what children learn from their parents at a young age is powerful and often sticks with them throughout their lives. It's never too early to explain the value of a dollar, so start today!

Show the value of compromising and saving

You can't turn on the TV, walk by a store, or have your kid's playmate over without being faced with advertisements about the latest and coolest gadget, or that doll that also needs to have a dream house and sports car. Use those "Mom, I need this!" conversations as teaching moments.

If your children earn an allowance, take the opportunity to teach them the value their money can buy both now and in the future. For example, let's say there are two toys, one costing more than the other. Explain the difference in value of the two items, and work through how long they would have to save for the more expensive item vs. how much sooner they could buy the less expensive item. If they understand the trade-off between having something now and saving for something more valuable and buying it later, you've taught them an important lesson in managing their money.

Open an account

Let your children have the opportunity to see the power of saving over time, including the value of compounded interest, by opening a savings account on their behalf. Bring them to the bank with you to help make the experience more meaningful. Also be sure to:

• Stay away from fees. Most banks and credit unions won't apply a maintenance or minimum balance fee if the account is opened for a minor. Explain what you're trying to do and ask the bank what the fees are up front.
• Make sure there's an online component. It's no surprise that children today are tech savvy and like to use the computer, so check that they are able to view their account online. Sit with them each month or quarter and show them how their money is growing, while explaining the concept of compounding.
• Look for extras. Some banks will offer a giveaway or extra cash when you open an account. This can give them another reason to be excited about opening an account. Plus, some banks offer financial education programs that teach kids how to develop good money habits.
• Consider planned withdrawals. Once your children are old enough, you may want to allow them to take out money to pay for something they've been saving for. That will show them not only how savings can grow, but also how it can be reduced based on spending habits.

Tailor your approach by age

Depending on how old your children are, there are various ways to teach them. Follow the tips below based on their age:

• Preschool/Elementary School
  • Break down the basics and discuss the difference between pennies, nickels, dimes, and quarters. Have your kids practice counting and math skills with money.
  • Point out the price for an item and explain that everything in a store costs money. Give them a dollar to spend and allow them to choose a small toy or a candy bar—but not both.
• Junior High School
  • Encourage your children to earn money by doing extra chores around the house, babysitting, or helping neighbors with yard work. Not only does working help children understand that money comes at a cost, it also helps improve self-esteem.
  • Establish spending limits for items like clothes and shoes. Be willing to pay up to a certain amount for something, then have your children make up the difference with their own funds if they go over the allotted amount.
• High School
  • Discuss the effect that debt can have on your teen's ability to save and purchase future big-ticket items. Provide examples from your own life—or someone else's—on how debt has negatively affected you and how you've been successful at reducing or avoiding debt.
  • Talk about taxes and what they are and why we have to pay them. If your teenagers work, review their paycheck with them and explain Social Security and Medicare taxes.

Lead by example

It's one thing to encourage and teach your children to save, but if they see you buying the latest gadgets or something for yourself every time you go to the store, it's harder for them to take your guidance seriously. If you do have a shopping habit—which you may be well able to afford!—try not to indulge too often in front of your children. Instead, share stories from your life about how you've worked hard to save up to buy the things you have today. Your children will thank you for it later!

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