Teaching kids to save their money is more of an art that a science. Here are some tips to help you succeed.
Am I the only parent who has this delusion?
Unconsciously I think teaching my kids something new will be like this: 1) I share my sage advice and wisdom 2) my kids absorb every bit of knowledge I’ve gifted to them, 3) my kids naturally follow-through and 4) problem solved, case closed.
You would think after eight years of parenting I would know better – but sadly, no.
I forget my kids have only walked this earth for eight and six years. They don’t have the background knowledge we adults have spent years acquiring. They’re starting from scratch.
So when I decided it was time for my girls to learn how to save money, I thought it would be simple: I would give them a “savings” jar to go with their allowance, they would willingly put money in there for weeks or months at a time, and naturally strive to collect enough cash for something special.
Years later they would graduate into the elite circle of financially-savvy adults.
Yeah, well, not quite…
What You See is What You Spend
You see, within a few weeks of using the three jar system for allowance – where I divided my girls’ allowance into three jars: spending, saving, and donate – it was clear that neither daughter had a clue what the difference was between the spend jar and the save jar.
In fact, almost as soon as I put money into the “save” jar they would take it out and spend it. And why wouldn’t they? What incentive was there to keep that money set aside for later use?
This is when the delusion is broken and it begins to dawn on me that teaching kids how to save money isn’t as straight-forward as I had assumed or hoped.
Back to the Drawing Board
So I did some research and found a few articles suggesting kids need interest payments to keep them motivated – just like a savings account in a bank. Which makes sense – why not teach kids one of the benefits of saving money – that you can “magically” make more money over time by keeping it in a bank.
But since savings accounts at banks charge so little that kids barely notice a difference, I decided it would be up to me to set up my own “bank”.
Clad with my trusty Excel, I built a spreadsheet for each girl using an extremely low daily interest rate – a daily rate would be easier to keep track of, I decided. Hands wiped clean, task done – right?
Learning that they could get more money by putting their cash in savings, the girls put all their money in savings, and continued to draw on it whenever necessary. With a daily interest rate, they were receiving more money but had little incentive to keep their cash in savings since every day their money grew.
Back to the drawing board.
With so much trial and error, and learning from mistakes, I think we’ve finally found a solution that works. The following is a list of what I’ve learned while trying to teach my kids to save money.
Tips to Teach Kids to Save Their Money:
- Create a “Save” Jar: Whether you give out allowance or not, it’s a good idea to teach kids that money can either be spent or saved. For younger kids this means putting physical money in glass jars so they can see what they’ve acquired. It might make sense for older kids to put their money in a bank account, although with savings rates so low they won’t see much return. The value will be in understanding how a bank works.
- Divide All Money Between Spending and Saving: Whenever your child gets money, whether as a gift, from doing work, or as an allowance, have them set some aside as savings (our family also sets some aside to donate), the rest is money your child can spend. The amount you put aside is up to you – we put away about 25% – but just keep it consistent so kids know what to expect.
- Include Interest Payments: Just like a bank, provide your child with interest payments to help them understand that by setting money aside and keeping it there, they can make more money. Making these interest payments monthly provides an incentive to ride out the month and delay gratification. While some parents double their kids savings at the end of the month I provide 10% – a number that provides just enough incentive without being too much.
- Write Down a Goal: This is another one that took me awhile to learn and we are just now implementing – having your child write down their savings goal can help them focus and understand what savings are for. I’ve also started to have my kids write down the amount in their savings each week so they can see how their money is growing. This also provides great real-life math lessons!
Use this free printable to kick off kids savings. The first page is an example of a savings challenge, and the second can be customized to your child’s goal. (Click the image below to access the sheet).
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