Kids and Money: How Do We Teach Children to Save?

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You’re shopping with your niece, when all of a sudden she makes a beeline for the Silly Bandz—again. That girl can’t save her allowance to save her life, you think. And you wonder if it’s your place to say something. After all, the earlier kids are schooled in responsible money management, the better. Then again, there is something to be said for learning from your mistakes, right?

Financial Health Is Health, Too

It’s absolutely appropriate to call attention to a child’s careless spending, says Manisha Thakor, a LearnVest investment expert, just as you would any other subject. “If you saw your daughter or niece eating 10 cupcakes in one sitting, or loafing on the sofa all day and getting absolutely no exercise—you wouldn’t think twice about saying something,” she advises. “It should be the same with personal finance. We can’t expect to have financially fit children if we don’t actively teach them what good financial behavior is.” She recommends adults lay out guidelines for spending, saving and donating to charity.

Teach Them to Spend, Save and Give

Parents, with help from their kids, can set the dollar amount or percentage that kids allocate toward each of these goals. For example, a rule could be to donate 10%, save 20% and have the remaining 70% to spend. The important thing is that kids get acquainted with the notion that every penny earned can’t be spent. And getting used to paying themselves first is a habit that will serve them well throughout life. There are even multi-chambered piggy banks designed for this purpose. Or, for $30 per year, you can automatically allocate allowance dollars for different purposes with Threejars.com.

Mistakes Are to Be Expected

Most experts say it’s normal—and healthy—for kids to make money mistakes. “They should be allowed to make their spending errors,” said Dr. Mary Gresham, a LearnVest psychology of money expert. After a couple of weeks, ask your niece if she is pleased with the Silly Bandz purchase, or if most of them are misplaced, torn or stretched out of shape. If she clearly wishes that money was still burning a hole in her pocket, ask “What would you do differently next time?” Gresham suggests. Nathan Dungan, who works with kids and parents on this very issue as founder of Sharesavespend.com, would step in if the child routinely makes the same mistake. “But rather than shift into lecture mode, engage your child or niece in a conversation about the choices she made and more importantly, why she made those choices and what impact they have on her ability to save.

Remember: You Make the Rules

It can be tough to convince a child, especially one with few wants, that it pays to save. What’s the incentive if she wants an American Girl doll and Grandma is asking for her holiday wish list? Some experts suggest parents pay an above market interest rate on money she saves. That way kids can see a sizable change in short order, driving home the point that saving is worthwhile. If a child tends to overspend, you also reserve the right to pull the “Because I said so” card: “Parents have veto power over any spending choice their child makes,” says Dungan, “especially if a pattern of spending is emerging that’s only about ‘scratching the itch’ of immediate gratification.”

How were you taught to save? Would you employ the same methods with your kids?

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  • Anonymous

    Cute picture! My friend had the best system for teaching her kids about money. For every non essential item she bought for them she showed them the price by counting out grapes. When the kids saw so many grapes spread out on the table they got to know the value of a dollar. Sounds weird, I know, but it worked.

  • Anonymous

    Great piece, Kara! Readers, do you have any techniques that have worked for you?nCheers,nCaroline WaxlernLearnVest’s Chief Content and Community Officer

  • Guest

    It’s pretty clear. Give them an allowance and one that’s reasonable. Kids these days have friends who are spoiled rotten. Any reality show will tell you that. Ten dollars a week is more than fine. Did anyone see the New Yorker story about that kid fashion blogger called Tavi? Great story and that kid gets $10 a week from her parents. Granted, she makes a ton on her own but clearly she knows the value of a dollar.

  • Rockon

    My son wasted all of the money I’ve ever given him! I’ve had it. Glad you are addressing this topic. It is my pet PEEVE!n

    • Anonymous

      I’m sorry that your son has given you trouble.

  • Anonymous

    Teaching children to save is one thing but how about law makers? That’s what New York City is trying to do! Today they rolled a website suggestion box where readers can put in their suggestions for how the city can save money. Do you think this is effective? Do you have any of your own to add?nhttp://www.nyc.gov/html/misc/html/2010/ideas.htmlnCheers,nCaroline WaxlernLearnVest’s Chief Content and Community Officer

  • Anonymous

    Teaching children to save is one thing but how about law makers? That’s what New York City is trying to do! Today they rolled a website suggestion box where readers can put in their suggestions for how the city can save money. Do you think this is effective? Do you have any of your own to add?nhttp://www.nyc.gov/html/misc/html/2010/ideas.htmlnCheers,nCaroline WaxlernLearnVest’s Chief Content and Community Officer

  • jada

    Jean Chatzky has a great book on this subject and recommends http://www.threejars.com on her site. We tried it and love it. It’s easier for parents to use an online tool these days, since kids pick up technology so quikly. I feel better when the kids spend time on threejars because they have fun learning abiut money, as opposed to goofing around.

  • Anonymous

    I’ve read a few other comments that mention an allowance as a good tool and I have to agree – kids don’t seem to value money until they are holding their “own” in their hands. Over time, though, I think you also need to help point out ways they can spend their money so they get a taste of what its like to earn and spend in as many real-life situtations as possible. My partner and I are testing out this idea with our 12 year old and decided to do it with cell phones first because she has been begging for one for the last 2 years. We all researched together and decided on a prepaid carrier (Tracfone) because it was cheap enough for her to contribute to the purchase of the phone and the aircards that power it. She gets $20 every 2 weeks as her allowance and we made the deal that every month she gives me $10 back to put toward the aircard – your purchase 3 months at a time so we hope it works out that the first $30 aircard will run-out just as she has “paid” for the next. A friend recommended the idea to me and I think its a great real life example – I hope to find more.