Never to early to teach your kids how to save

Do you teach your kids how to save money? As parents, we should help them develop a savings culture. If you are, then that’s great because no time is too early to start.

Starting early to teach your child the importance of saving money and how to save will lay a good foundation for your child’s financial future.

It is important to start early because saving money is a habit that usually requires some time to build. Even some adults are still grappling with mastering how to save money. Do you know that in America, only 41% of adults have savings for emergency situations? That is not an encouraging figure and is one of the reasons you should start preparing your kids on time.

If you are wondering where to start, here are 10 tips to help you:

1. Distinguish between needs and wants

To help your children understand how to save, it is important that you let them know the difference between needs and wants. Let them know that food, shelter and clothing come on top of the list of needs. Also let them know that buying a new mobile phone, taking a vacation in another state or country are wants. You can give them more examples using your own scale of preference on what you consider to be needs and wants. Once they understand the difference between the two, they will be able to save appropriately towards the two while knowing which deserves more saving than the other.

2. Lead by example

Children look up to their parents for a lot of things especially when they are still under 12 years of age. The best way to practice what you preach is to show them how it’s done. For instance, you should take them along when going to the mall. Let them watch you compare prices and tell them why you choose to go for a cheaper product and the amount you were able to save at the end of day.

3. Give them money to save

If you want to teach your kids how to save, you have to give them their own money at some point. You can give them allowances for chores or anything you think you ought to reward them for, and you can then monitor how they use the money and what they save out of it.

4. Plan a savings goal with them

Help them set a savings goal by breaking it down for them. If a child wants to own a new gaming device that costs $40, let him know that by saving $10 a week, he will be able to get the device in a month. If you do not explain why you kid should save, he may not be motivated to save.

5. Set up a dedicated place for their savings

If you have started giving your child allowance, you also need to set up somewhere they can put their savings. Most parents set up a piggy bank for their young kids. If your child is much older, you may need to set up a real savings account at the bank for him. Always let him see how his money is growing so that he will be encouraged to continue with the habit.

6. Pay them interest

If you are not yet ready to set up a joint bank account for your child, you can decide to still pay him market interest rate on the money he has been able to save. You can calculate the amount he has saved and then add 10% to it. This is a great way to start teaching him the concept of compound interest at an early age. This will pave way for him to understand investing concepts for the future. It is also a great way to encourage him to reach a milestone. For instance, if he reaches $100, you give him extra $50.

7. Encourage tracking of their expenses

If your child is still very young, you need to know how he spends the money given to him. Have him write down his expenses anytime he spends. At the end of the week, go through his spending with him to see whether he is on the right track of saving and spending or if a change is needed in his savings and spending pattern.

8. Save together for a project

Another way to teach your child how to save is by setting a target of what both of you want and start saving towards it. It could be for that vacation, a change of motorcycle for both of you or anything. If you too are interested in having something together, it is a great opportunity to teach him the importance of saving when you save with him.

9. Allow room for mistakes

Your child is on his way to learning and should not be put on the hot seat. If he makes mistakes in his savings pattern, do not go hard on him about it. Allow him to learn from the mistake so that in future, he will understand the consequences of not be consistent with his savings, especially if he is saving for something.

10. Teach him the consequences of buying on credit

Credit cards are good because it allows one to buy now and pay later. But, it also encourages spending beyond one’s means and paying more. You can teach your child the importance of spending within his means so that he does not learn the habit of buying things on credit and paying interest on it.

For instance, if your child is impatient about getting a gaming device that costs $60 and he has only save $25, you can become his creditor and give him the remaining $35. However, when he pays you back, let him pay with interest. That way, he will understand that patience can sometimes save him from paying unnecessarily interest for things that can wait.

These 10 tips will put your child on the right path to saving money effectively. As always, I would love to hear what you think about this article in the comment section.