September 1, 2020
Smart Tips for Teaching Kids about Money Management and Savings
Teaching kids to save is one of the smartest things you can do as a parent. Think about how you learned about money management. If you knew then what you know now, what changes would you make in how you approached saving money before you turned twenty? What saving habits do you wish you would have started earlier? And as a result, what impact would that have on your finances today?
An important tip for parents is making sure your child repeats the good habits you learned and develops better habits than your poorer ones. Remember, if you don’t teach your kids how to save, someone else will.
The first step: Ensure your child has money to save
The good news is that kids today earn some type of allowance and also receive financial gifts for birthdays and holidays. According to Rooster Money, a chore tracking app, over 40% of children who receive an allowance save some of it. But, according to Bankrate, a little less than 30% of adults have no savings set aside to cover emergency expenses.
Helping your child develop good saving habits help put them – and future generations – on the path to financial independence.
Here are sound tips to get them started:
Talk with them about money.
Whether you are at the store, paying bills or discussing monetary gifts, ensuring kids know key financial concepts is key to their understanding the importance of saving money.
Make sure they understand the difference between Needs and Wants.
This concept is the bedrock for all the financial decisions your child will make in their lifetime. (See our July/August article, Financial Lessons, Teaching Your Kids About Money Management, also by Robert Baer, here.)
Use their money for some purchases.
Match their savings for a desired purchase, such as video games, sports gear, or clothing.
Ensure they save their own money.
If they don’t get an allowance, start giving them one, tied to chores, and discuss how much of it they should save. Setting up a plan for other financial gifts makes sense as well, for example, saving 10% of their allowance and 50% of other financial gifts.
Match their savings.
What an incentive, if you match their savings, dollar for dollar! It’s the quickest way to double their money and will help them develop the habit of saving. If you can’t match dollar for dollar, then match dollar for dollar up to a preset limit, just like a 401K.
Let them see what they’re saving.
When they’re younger, put the money in a glass jar; as they get older, open up a savings account and teach them how to make deposits, withdrawals, and balance it. Once they enter high school, open a checking account and teach them how to use a debit card.
Make sure they understand the concept of taxes.
I went shopping with my niece, then in high school; this concept created a great learning experience while we were at the cash register. The comedian Bill Murray said it best: if you want to teach your kids about taxes, eat 30% of their ice cream.
Most importantly, be a good example for your kids.
They spend their entire life watching what you do and try to emulate it in some form or fashion. Talk with them, at an appropriate level, about how your family saves and makes money decisions. And then give them examples of how you did not make a purchase because you were making a sound financial decision not to. That would be one of the best financial lessons you can teach them.
For more information, visit Fidelity Bank’s Financial Literacy and Education Resources for educational resources and workbooks by age, grades Pre-K through 12.
Robert Baer is a Vice President at Fidelity Bank. He coordinates Fidelity’s Financial Literacy initiative.