Money Savvy Kids, Money Savvy Adults

The following guest post is from Debbie Dragon. Read more about Debbie after the article.

It has been said in the news over the last few years that Americans are not saving enough money. Many people blame the lack of savings finesse on their inability to make ends meet, let alone put extra cash away, but the reality is that most people never actually learned how to save.

how to teach kids money skills by GoodNCrazy

It is for this reason that teaching kids what it means to set and maintain savings goals is more important now than ever.

Getting Started

For some parents, it is the ‘getting started’ part of the equation that is the most difficult to conquer. They may feel their kids are too old or too young to learn the importance of basic personal finance lessons.

The reality is no one is ever too old or too young to learn money lessons. In fact, kids of any age have the ability to learn and effectively incorporate good money habits into their lives.

Establishing Allowances

Even toddlers can have a hand in keeping the household running smoothly. While some are quick to argue the effectiveness of financially rewarding kids for doing household chores, there are certainly lessons to be learned. Every parent can establish their own system for financial compensation based on work done at home.

If your child is old enough to earn cash of their own accord, that income can also be an essential tool for learning about money priorities.

Setting Goals

Once it has been decided among family members how allowances are earned or how much income is generated from a teenager’s job, it is important for parents to have a one-on-one conversation about basic money matters. Even younger children have ideas of what they would like to have or purchase with their money.

For many, it is toys and candy. Older kids may already be interested in saving for long-term goals in addition to the more current desires like a vehicle, new clothing, or entertainment with friends.

Help your child make a list of the things they might like to save for and try not to dictate their personal decisions with your own parental insight. Let them have the majority of control of their ideas so they will be more motivated to start saving.

Discussing Deposit Requirements

Parents can teach kids the basic workings of savings accounts. Depending on age appropriateness, the discussion can be as simple as describing how they get to go to the bank and write their deposits in their savings register. Older kids can benefit from learning about how interest accrues over time.

This is also the time to discuss the amount of money kids should strive to save from a job or from their allowance through regular deposits. For example, 10% of income is the norm for many adults to tuck away into savings from each paycheck based on the ‘pay yourself first’ theory of personal finances.

By teaching this lesson early, parents are essentially setting their children up for successful financial freedom in the future. By teaching kids to always account for 10% going into the bank on a consistent basis, they will likely carry that lesson into adulthood without a second thought.

Let older kids calculate what 10% means in cash terms and help the younger kids develop a list of percentage amounts based on dollar increments. For instance, create a kid-friendly list that shows how much of a deposit is expected based on the dollar amount they receive.

Younger kids can look at the list and easily be able to report back that $4 in allowance means 40 cents must be put into a savings envelope. Since little kids likely earn less in a week than older ones, let them decorate a savings envelop of their own where they can put their change in until they have a sufficient amount for a bank deposit.

Going to the Bank

For kids of all ages, it can be a big event to take a trip to the bank for the purpose of establishing a savings account all their own. It is a big deal to feel the sense of accomplishment in setting goals. While parents have to fill out and sign the majority of paperwork, kids can still enjoy a walk-through of how things work at the bank. They can also be put in charge of collecting their bank register and filling out their first deposit slip.

Older kids may be interested in obtaining a checking account as well, so they have access to some money not going into savings or can start paying some of their own bills as they get older – perhaps their car insurance. All of this can be turned into effective money lessons that will last a lifetime.

Sticking to Your Guns

As a parent, it can be hard to see your child go without something they want. Once you have helped them to establish their rules and savings goals, it is important for you to stick to your guns and not give in when they beg for money to reach their goal.

It is not uncommon for kids to slack off in their household duties therefore failing in their attempts to save for a specific want. If you give in and provide money they didn’t work for, you are essentially reversing the financial lessons you are trying to teach.

When your child heads to the toy store or the new clothing store at the mall and doesn’t have enough cash to cover what they want, they will soon begin to understand the importance of self-reliance and a commitment to budgeting, even if they pretend to think you are the meanest mom or dad on the planet.

There is little chance in their adult life that someone will always come to the rescue financially, so setting kids straight at a young age is one of the best financial lessons a parent can provide.

Debbie Dragon is a freelance writer for ComplexSearch, an online bank rate tracker. Find high interest savings accounts and money market accounts with ComplexSearch.com.”

Comments

  1. No kidding! But that being said, having kids is a great way to “lead by example”. If you openly discuss realistic money issues at home in front of the kids, they will no doubt take it upon themselves to save as well.

    Daddy see, daddy do….

  2. Great post. On the subject of going to the bank as a kid – I grew up in Northern Ireland and whilst I was in primary school we used to have a bank come to the school every week and set up a ‘mini-bank’ in one of the classrooms and we could deposit money into our savings account every week. It was a really good idea I though – but unfortunately this practice seems to have died out.

    • Jonny, my children can bank at their elementary school on certain days too. I don’t particularly like the bank who manages the accounts though, so we don’t use it but it is a good idea!

      • I really love the idea. I wish more banks bought into the idea of teaching our children how to manage their finances insted of seeing them as potential targets that they can sink their claws into!

  3. I like the general philosophy, and the open-endedness on things like allowances and chores, but… I can’t help feeling that this is basically teaching kids to budget and save– in the 1980s.

    Deposit slips? Registers? Going to the bank?Are we going to teach them to balance checkbooks while we’re at it?

    “Online banking” is now just plain old banking, and there are lots of tools online that will be interesting to kids while teaching them how to manage their money in the real world.

    Another interesting blog on this subject:
    http://www.mint.com/blog/how-to/be-your-own-bank-11092010/

    • I’m admittedly old-fashioned in many ways. I believe in teaching basic principles using the most primitive tools available because those tend to most engage our brain and help grasp the fundamentals. From there, you can add in whatever technology is available to streamline things.

      Take TurboTax as an example. I love it…have used it to file my last several returns. However, I feel somewhat disconnected from the actual tax laws and calculations because I rely on TurboTax to guide me through. If I completed taxes by hand, had to hunt down every instruction referenced, etc, I would understand much more about how taxes worked.

      To offset this, I actually print out my return and read the hardcopy cover to cover to understand all the numbers.

    • I use online banking, but I have a few clients who insist on paying with checks so I end up going to the bank a few times a month :) I think kids DO need to learn how to balance checkbooks, because even when you bank online, you have to know how much money you have going out, how much hasn’t cleared, etc. So many people try to use their online bank balance as their “available balance” and guess what happens?! It doesn’t work! I think if kids learn the basics of how it all works first, they’ll be in better shape to use all of the modern technology for managing their finances.

      • My opinion: no one should be living that close to overdrawing anyway. That’s one of the most important lesson to teach kids. I don’t think checkbook registers are basic technology; they’re OUTMODED technology.

        I think too many adults assume that kids and young adults have to go through all the stages of learning to use tools to manage our finances that we have, when in fact that wasn’t about developmental stages at all, just about evolving technology. It’s good to keep an eye on what’s coming in and what’s going out. It’s a waste of time to learn to balance a “checkbook”. Kids can and will grasp the basic concepts using the same technology adults are using.

  4. The most important aspect of teaching your children is modeling the skills you are teaching. If you want smart financial children, show them how you do it. Take them along to the office, bank, stock broker and involve them age appropriate.

  5. the largest problem with tying money to chores is that eventually a child grows up.
    Who pays YOU to keep your house clean?
    Do the chore thing until they go to school- and then just start an allowance. Move the “chores” to “just being a responsible part of the household”.

  6. I agree with Janette: I am working through the theory that paying children money to do chores is harmful. Children should have another way to earn money. Perhaps rewards for extra effort, or if they do work that actually earns money like they organize the house and have a garage sale, then they keep the garage sale earnings.

    Paying money for chores definitely teaches them to hate chores. You will soon have a child who does not do chores unless paid.

  7. I agree. Paying them after doing chores may not be suitable though another way they can save is by giving your kids extra money when they get high grades. It can help them save and motivate them to study harder.

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  8. One thing I would add, from the child’s perspective: if you call if a savings account, please don’t give your child free access to it. Don’t give them the option of pulling out cash to buy candy. Literally, hundreds wasted on candy as a preteen.
    My parents started well, putting in money for us every year, making a big deal of going to the bank after Christmas to deposit gift money. With my own children, we put their money into a piggy bank. When it gets full, we move it to an account of theirs.
    My intentions for as they grow is to give them the option of keeping some of it on hand if they are saving for something. Once it goes in the savings account, it stays there til after high school. The one place I can see bending is if they need to buy a car to work during high school.

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