Anyone who’s ever tried to exercise regularly, or quit buying Starbucks every single morning, or drink eight glasses of water a day knows that building a new habit is a tough but invaluable skill. One habit you’ll want to instill in your children from day one is the idea of saving money.
Whether it’s a long-term goal, like contributing to their college funds, or something fun like funding 50% of a new iPad—even the youngest children benefit from developing their saving muscle.
With very young children, start building the saving habit with a special piggy bank or account that’s just for saving. Teach children to put a certain portion of any money they get into the “not for now” bank. Some parents use three jars: saving, spending, and sharing. How complicated you get depends on you and your child, but make sure you have one jar that’s only for savings.
Motivation makes the difference
In the early stages, it doesn’t really matter what specific goal you set for that money: retirement (“for when you’re really old and don’t work anymore”), college, a charity, spending money for the next big summer vacation, a special treat like a phone, or an iPad—your child’s goal can be any one of those things or more. Your mission is to help kids recognize that saving part of their money is what smart people do when they want something.
Helping your child find the motivation that makes him or her want to save money is probably the trickiest part of helping kids build a saving habit. “For some, the security of having money just in case is incentive enough,” writes Kara McGuire in the new book “The Teen Money Manual: A Guide to Cash, Credit, Spending, Saving, Work, Wealth, and More.” “For others, it’s the challenge of meeting a goal. Then there are those who are driven to save because they like to see their fortune grow or not have to ask their parents for money to buy a new phone.”
Practice makes perfect
Help kids keep track of their savings progress by counting their coins, monitoring their account balances, or reviewing their ledgers regularly. Lend context to their growing balances. Help little ones understand how much it will take to reach their goal and how long they will need to save to get there.
With older kids, explain how compound interest works and talk about how much money they are likely to have next year and the year after that, and then five years after that—if they start right now.
Build your child’s identity as a smart saver, and pump up that saving muscle through regular exercise. When you help kids build the saving habit early on, it’ll be easier for them to keep it going later in life when it counts.