Teaching Kids to Save
It’s amazing how perceptive children are: they can tell when money gets tight, and they know when you have a spare $20 in your purse. With their perception and spongy minds, children as young as four can begin to learn concepts of saving. Of course, children of different ages learn about money differently, so let’s break down savings concepts by age groups.
Toddlers: Three to Four Years Old
As soon as a child stops trying to eat money, they can learn some basics. When my niece, Sara, was three years old, she loved money. She would ask anyone and everyone for their change, and pretty soon she caught on that dollars were worth more than cents. Sara’s exact words when she caught on were, “Aunt Christa, give me your good money.” I didn’t know what she meant until her mother explained “good money” was dollar bills. She was encouraged to put her change and dollars into her purse to save, and saving became a game.
Little Ones: Four to Six Years Old
Now, at four years old, Sara’s love for money was recently rewarded with a cute, pink piggy bank that she picked out. Sara loves to take her money out and “count it,” then she puts it back in the bank. She knows the difference between a quarter, a dime, and a penny, but the nickel is still a difficult concept. Soon, though, she will be old enough to identify all the change and give each their value. Children four to six years old understand the basic worth of money, and you can begin to teach them the value of individual bills and coins.
School Age: Six to Ten Years Old
As children grow, they can begin to understand more complex money matters. Interest, for example, is really exciting to children. Learning that the bank will pay them money to save amazes kids. When my nephew, John, turned six, my brother took him to the bank to start a savings account with his piggy bank money, and he taught John about interest. When the first statement arrived, my brother made a point to show John how his balance grew by the interest amount, and John was thrilled. As John gets older, he will be able to use math skills to track his ledger himself and add in his interest.
Tweens and Early Teens: Eleven to Fourteen
My brother, Mark, is quite a bit younger than me, so I have watched him grow into a teen. When Mark was eleven, he was in love with math. My mother taught him to apply percentages to his allowance: at least 30% to savings, 20% to church, and 50% to spend. Most children at this age are able to start budgeting using basic guidelines such as percentages, and they should be encouraged to use their skills to save.
Teens: Fifteen to Eighteen
Many children in their teens begin to work part-time jobs. This time period is a great for learning real-world practicality about saving. For example, you could encourage them to save for a car or college by offering to match a percentage of what they save. My brother, Mark, began working at McDonalds, and the real-world experience was great for his financial growth. My mother taught him, among other financial basics, to start a direct deposit savings account. When he saves enough money, my mother will match his contribution to buy a car.
And now's the time to start talking about what types of investments your all-grown-up kids can start considering when they're in college and beginning their first job: stocks, bonds, retirement accounts, IRAs, and other accounts that can make their money work for them during those crucial early years of earning. Don't forget to impart the basics as well; concepts like diversification, when's a good time to start investing, and some good questions to ask along the way.
As they grow, children can grasp savings concepts that will spring them to future financial freedom. Even toddlers can begin to learn the concept of saving, and through all stages of learning, children can sharpen their financial skills. As they leave the nest, they will be equipped with the financial knowledge to save a portion of their paychecks.
This article appears in the Carnival of Personal Finance #283. Head over there to read more great personal finance articles.