How to teach your kids to save
By Aaron Crowe
As any parent who has used a variation of "Do what I say, not what I do" knows, it's hard to teach your kids a lesson if you're not following your own advice. If you're not a saver and your children don't see you putting money away each month in the best high yield savings account you can find, then they're less likely to learn that habit.
Parents, you don't have to go over every monthly bill with your children, but it's a good idea to show them how you put money aside every month for emergencies, as savings for a rainy day, to save for a vacation or other large purchase, or to invest for the future, such as college. Learning how to set and meet a long-term goal is an important lesson for everyone.
In our family, I made it a habit a few years ago to have my daughter contribute to her savings account each month so she can learn how important it is to save. Most of her allowance (two-thirds) goes into the savings account for long-term and short-term goals, the long-term being college or a car purchase when she gets older, and the short-term being a new toy she wants to buy. The last one-third of her allowance is for immediate spending, although she often puts that into her bank account too.
We also go over what the family is saving for each month, which include a fund for emergencies and travel. I'm not sure if she yet grasps this concept at age 7, but at least the seeds are being planted.
The value of a dollar
Another thing to do to help your kids save money is to help them learn the value of a dollar. Instead of giving them money for whatever they want to buy, give them chores to do at home and an allowance so they can learn how hard it is to earn a dollar. They're less likely to spend money frivolously once they figure out it takes five hours worth of doing chores to earn their allowance.
Allowances should be whatever amount your family is comfortable with, but one rule of thumb is $1 for every year old the child is.
Once they've earned the money, most children will want to spend it as soon as they get it. We have our daughter put her cash in a jar, which she can dig a few dollars out for purchases before we go to the bank every month to deposit most of it.
We've also asked her to save for a short-term goal, with about half of her savings being set aside for something she wants to buy in a few months. She's saving for a Nintendo DS gaming system, which we've warned her will cost much more than the initial price if she wants to buy more games.
Since we already have a college savings account that we're contributing to, our goal for her savings account is for her to save for either a car or to help pay for going to college. They're long-term goals where at least half of her savings can be set aside for, and our next step is to pick one of the best high interest savings accounts so her money can be put to work for her.
For now her savings account is at a physical bank that we visit each month when she has enough allowance or gift money to deposit. I wanted a brick-and-mortar bank to visit so she could see where her money goes, but since the interest rate is so low, we may soon start shopping for an online savings account so we can find the best rates and learn the value of compounding interest. That's a lesson for another day.
Aaron Crowe is a freelance journalist in the San Francisco Bay Area who specializes in personal finance topics.