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.

What tips have you picked up to help your children learn about money? Leave a comment or connect with us on Twitter or Facebook.

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This article appears in the Carnival of Personal Finance #283. Head over there to read more great personal finance articles.

Anonymous's picture

MoneyCone wrote:

Mon, 11/08/2010 - 12:23 Comment #: 1

Great tips Christa! Having a toddler running around the house all the time, I need to think about this as well "as soon as he stops trying to eat money"! :)

Also don't forget, open a Custodial Roth as soon as your kid starts earning. It involves a little bit of paperwork and extra taxes to be filed, but this is the best gift you can give your kid!

Christa Palm's picture

Christa Palm wrote:

Mon, 11/08/2010 - 19:54 Comment #: 2

MoneyCone, thanks for the comments! I hope your toddler stops trying to eat money soon -- the terrible twos can be rough!

Great tip on the Custodial Roth. Your tip reminded me about the 529 Savings Plan that allows parents to save money, tax deferred and with annual tax benefits, for their child's college education. This is a great plan for parents and children alike!

Anonymous's picture

Dd wrote:

Tue, 11/09/2010 - 17:46 Comment #: 3

I must say I enjoyed this article! Many people neglect the giving part of money--we are all so eager to save and horde it... but we should give it as well and instill that in our youth. I certainly have a lot to learn as I don't even give 20% to the church :P I really need to get on that :)

Christa Palm's picture

Christa Palm wrote:

Tue, 11/09/2010 - 20:01 Comment #: 4

Thanks, Dd!

My mother is a firm believer in giving 20% to church, but I am much more lax. Budget guidelines will vary by family depending on beliefs and capabilities, and my brother's budget of 30% to savings, 20% to church, and 50% to spend is only an example of a teenage budget, as agreed upon by my mother and brother. Many teen budgets may not be as charitable -- I personally believe in charitable contributions of time and effort over money.

Anonymous's picture

Canadian Finance Carnival #11 - Canadian Finance Blog wrote:

Sun, 11/21/2010 - 10:00 Comment #: 5

[...] that was made for Canadians to save money shopping online.”Rachel at MomVesting presents Teaching Kids to Save, saying “How do you get your children to exhibit habits you may not have [...]

Anonymous's picture

The Kids-and-Finances Guide for Parents | MomVesting wrote:

Thu, 01/19/2012 - 21:45 Comment #: 6

[...] how to teach your children to save money? Here are some great [...]

Anonymous's picture

Deanna wrote:

Sat, 03/03/2012 - 22:04 Comment #: 7

I totally agree! We got our daughter a Moonjar when she turned 3 and we've been working on teaching her to: SAVE, Save to spend, and Save to share. She loves collecting coins and putting them in that jar :) I happened to run a giveaway for a Moonjar awhile back on my blog: http://www.ibebloggen.com/my-first-contest/ (contest is over)

Christa Palm's picture

Christa Palm wrote:

Mon, 03/05/2012 - 21:10 Comment #: 8

Deanna, what a cute bank! I like the "Conversations to Go" game, too -- I'll definitely have to check them out when my first child (still incubating in the oven) gets old enough!

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