Many statistics show that people are sorely lacking in financial education. It is the absence of knowledge on how to budget and save money that contributes to the high number of bankruptcies and the even higher number of people who are living paycheck to paycheck.
To make sure your kids don’t suffer this fate, it is a good idea to teach them good money habits from a very young age. This means teaching them, perhaps, the most fundamental lesson of all – how to save.
Teaching Kids to Save
Teaching kids to save money should begin as soon as your children are old enough to understand the concept of delayed gratification, if not before. Kids need to know that if they don’t have enough money to buy something right away, that they need to save up their money for it. You can start by helping them to do this when they are very young if there is a toy or game they want.
When they get their allowance, encourage them to set aside a portion of it for that desired toy. Don’t just give in and buy the toy for them. Then, when they finally save up enough money to purchase the item they have been coveting, have a conversation with them about how saving allowed them to get this item.
As kids get older and start to understand more and more about saving, you can help them to start saving for bigger goals and to understand the importance of saving for the future. One great way to get your kids on the right path is to get them a junior ISA, as they do in the UK.
Junior ISAs are tax-advantaged savings accounts that you, your relatives and your kids can contribute money to. The money in junior ISAs grows tax free and then kids can either cash it in or, ideally, can convert it to an adult ISA when they turn 18.
Tips for Teaching Saving
Some parents require kids to save, mandating that they put aside a portion of their allowance or income earned. While this can work in certain cases, making saving mandatory without explaining why is unlikely to teach kids the fundamental money lessons that they need to learn. After all, when they become adults, no one is going to force them to save.
Instead, kids should be encouraged to understand why they are saving and how saving can better help them to reach their goals and make the most of their money. One creative idea to help kids understand this is to consider encouraging them to save for their first car by offering a “matching” program. That way, kids will get to work for the car they buy, see the value of saving and get a real, physical and tangible example of being able to buy something that is really desired, simply because they planned ahead and saved.
Leading by example is also a great idea as well. Your kids should see you not only opening junior ISAs, but also see you practicing smart spending decisions for yourself. This means that your kids should see you saving, not spending money you don’t have and otherwise exhibiting smart money skills that you want them to learn.