Being financially literate is important for children and individuals of any age. It is important to start teaching kids about money and personal finance when they are still in school. There are some easy tips to teaching your kids how to save their money, some of which can be implemented in your everyday experiences.
When you go to the bank, explain what you are doing when you are making a deposit or withdrawing money. At the store, if you swipe a credit card or debit card, explain how the funds are subtracted from your account or the need to pay off the credit card balance.
Once their piggy bank starts getting full, it may be time to go to the bank to start a savings account. When they get to be teenagers you can open a checking account so they have easier access to their money with a debit card. Explain to them how the debit card and credit cards work. When you use a debit card, the money is immediately taken from your checking or savings account. Also, reinforce the importance of being able to pay your credit card balance in full each month.
In order to know how much they will be able to save and spend each month it is necessary to have a monthly budget. Just as your budget consists of income and expenses so does theirs. When they are younger, the income may consist of allowances and any gift money. It is important that they know how to allocate their income between saving, spending and giving.
Once they become teenagers and are receiving more money in allowances, part time jobs and other sources, it is important that they know how to deal with money and personal finances.
One way to get kids to see the benefits of saving money is to explain the power of compound interest.
When their child is saving for a larger purchase, some parents decide to offer a matching contribution. Dave Ramsey did this with his kids to help them purchase their first cars.
When they are saving for a purchase, make a chart that shows the progress they have made and how much more they need to save. A way for children to save is with a “shadow savings box” that has a photo of what they are saving for.
Make sure your children know the difference between wants and needs. To most children most things will at first be considered needs. Explain that there are others that are not able to purchase adequate food, clothing and other items.
Lead by example; show your children how to fill out a deposit slip at the bank and show them that you save a portion of your income. If you want them to know the difference between wants and needs, you also need to know the difference.
It may be easier for them to save money if items if they have a specific savings goal in mind. But also, urge them to purchase smaller items they may want as they are saving for a larger purchase so they do not feel too restricted with their savings. If they feel too restricted, they may get frustrated and give up on the goal.
There are several tips to teaching kids how to save money when they are younger before they develop poor spending habits.