Teaching kids to save money is no easy task. You can start by helping your child to understand the value of money and to save it can help to position them for a more successful life. As a foundation, Investopedia.com shares, you can help them to understand money’s value by teaching kids the difference between wants and needs.
Understanding The Importance of Money
Needs, you can explain, including food and shelter along with basic (not a designer) clothing. Other important needs are paying for the doctor and dentist and education costs. Wants, on the other hand, are life’s enjoyable extras: fancier clothing, candy, movie tickets, and so forth. As you walk through your home, you can ask them what each item is: a need or a want.
Share how it’s important to save money to pay for both wants and needs—and then give them a place to save their money. It can be as simple as a piggy bank or as formal as opening a bank account for them. They can put gifts from Grandma in the jar as well as allowance money if that’s something that your family provides. Or, as Dave Ramsey’s team suggests, use a clear jar where young children can see their coins adding up.
Explain The Value of a Dollar
When a child is in preschool or kindergarten and wants a certain item from a store, find out the price. Then physically remove that amount of money from the clear jar so that they can see how much of their saved-up money will go towards that item.
If your child has reached elementary school, they’ll understand numbers more fully. So, it’s time to demonstrate “opportunity cost.” If they want a video game, for example, and they know they have enough money, discuss what they won’t have money to buy—perhaps an in-demand brand of shoes. Let them weigh the pros and cons of what to do with their money.
Should Parents Provide an Allowance?
There’s a lot of debate on the topic of allowance, and Ramsay suggests that, instead, you give your children “commissions.” This money will be based on what chores your children complete, teaching the idea that money must be earned. Here’s more information on the pros and cons of allowances.
Saving money—for kids and adults alike—can seem more logical when you have a goal for saving those funds. This teaches the all-important lesson of delayed gratification. According to NerdWallet, this can help children say no to impulse spending because they know why they’re saving.
Buying Mulitple Items
The notion of impulse buying brings up another crucial point: when teaching kids to save money, you should also teach them how to spend it wisely. Once your child reaches an appropriate age, you can help them to put their money into a savings account that comes with an app that guides their budgeting and limits their spending. This allows them to incrementally experiment with spending money, teaching them far more than any theoretical example could provide.
Introduce Savings Accounts To Your Children
Forbes.com adds two more essential elements. Teach them how putting money into interest-bearing accounts helps their money to grow simply by being in that account. Also, teach them the value of giving. This could be to a charity your family already supports or they can find one at Charity Navigator. This website investigates charities and rates them, allowing your children to give to worthy, trustworthy causes and organizations.