So many kids don’t learn how to save money or how to manage money once they have some. Follow these 10 tips to establish good saving, spending and investing habits early on and your kids will be well ahead of the pack.
- Start with a Piggy Bank – This is square one. You can start your child on the path to being a good saver by giving them a piggy bank as soon as they’re able to recognize and count the value of different coins. Kids will naturally be attracted to a big, pink bank and if you find the right one, it should be a lot harder for them to get the money out than it is to put money in. As you add coins to the bank, make sure you shake it often so they get excited by the sound and weight of their growing stash of coins.
- A Picture Is Worth A Thousand Words – Once your kids have started saving, it’s important to keep them motivated. Find a toy or a game that they are excited about (one that’s not too expensive) and put a picture of it next to the piggy bank. Now every time your kids put some money in the bank they’ll make the connection between saving and eventually being able to have something they really want.
- Demonstrate How Interest Works – It may be a little early to tackle the finer points of compounding interest, but you can start simple. At the end of each week, put some coins of your own into the bank and tell your kids that money in the bank earns interest. Tell them about how this is one of the amazing things about money – it makes more money just by sitting there! You can leave out the fact that most savings accounts are paying near zero interest these days. By the time your kids open a savings account, rates should be closer to their historical average.
- Encourage Saving by Matching Your Kid’s Savings – On some occasions you should match what your child puts into the bank. You could tell them that during the first two days of the month you’ll match any of their savings. Or that the money they save from their birthday gifts will be matched. Pick something that will make saving more attractive than spending. This will help prepare your children for similar scenarios when they’re older, like when an employer matches their 401k contributions.
- Give Your Kids an Allowance – An allowance will most likely be the first time your kids learn to associate working with earning money. This is a little different than saving, but if no money is earned, none can be saved. Instead of giving your kids a flat number of dollars each week, tie their allowance payments to different jobs they can do around the house. Make different jobs worth different amounts and you’ll show them that some jobs are more desirable (and more lucrative) than others. You might even find that your kids compete to do the more favorable jobs around the house. Imagine that!
- Performance in School is Like Money in the Bank – By rewarding good grades at school, children will make a connection between performance and compensation which will help them later on in life when they have a job. To get started, make a list of grades and how much they’ll pay out, and put it up on your fridge as a reminder. If you have children of different ages, you can make the payouts a multiple of their age. For example, an ‘A’ could pay out 2x for each child’s age. If your 8 year old gets an ‘A’ it would be worth $16, and if your 10 year old gets an ‘A’ it would be worth $20.
- Encourage Comparison Shopping – Saving isn’t only about putting money in the bank. It’s also about finding bargains. After all, a penny saved is a penny earned. Teach your kids to shop around when they’re looking to buy something. If you’re shopping in a store, have them check prices for the things they want online by using a barcode scanner or price comparison app. If your kids are shopping online, have them check prices from different vendors and websites. The more they save, the more stuff they can buy, which is a powerful message.
- Clip Coupons – Finding coupons is so easy these days. Websites like RetailMeNot.com and CouponMom.com make it so easy to get some kind of discount or promotion when purchasing online. While finding coupons can be a pain for adults, kids generally like these kinds of scavenger hunts. Establish a policy that before your kids can buy anything, they need to find a coupon for it, whether it’s online, in a flyer or somewhere else.
- Credit Card – You’re going to have to wait some time after the kids get their piggy bank to try this, but it’s an important lesson. Perhaps the biggest financial pitfall that people find themselves in is taking on more debt than they can handle. The high rates on your credit card are there to keep you in debt, so the best way to resolve this kind of problem is not to get into it in the first place. Make sure your kids get their first card while you’re there so you can explain to them the benefits and drawbacks of a credit card. Since they’ll already be familiar with the concept of interest, they should be able to see how unfair it is that the bank only pays you a few percentage points on your savings, while the credit cards charge an
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- The Investing Game – For this exercise it really helps if you have more than one child. If you do, this will probably get their attention more than any other trick on this list. By the time your kids are approaching high school they should be familiar with the basic concepts of the stock market. They’ll also probably be more internet savvy than you are at that point. Put these skills to use and open up a custodial internet trading account for them. Fund the accounts with a hundred dollars (maybe over the holidays?), and tell them that whoever makes the highest return by the end of the year wins an extra hundred dollars in their account. In my experience, sibling rivalry and money are two of the most powerful motivators. Together, these incentives should inspire your new stock market moguls to spend some real time and effort trying to out-perform one another. In all likelihood they’ll get too eager and will end up making foolish investments, but that’s the point – to learn from their experiences while they’re young and not when they get older since bad investments made by adults can have serious consequences. Keep these investment games going over the course of a few years and your kids will have a wealth of valuable investing experience, if not a wealth of actual money!