You know your kids are sponges. So let me ask you a question: what lessons about saving are they absorbing from you?
I can’t overstress the importance of instilling an appreciation for saving. I believe financial freedom is only achievable when you can derive the same pleasure from saving as you do from spending. Actually, saving should give you even more pleasure!
Yet too often saving is seen as some form of punishment, or akin to eating your least favorite vegetable. That not only shortchanges your financial future, it sends horrible messages to your kids. Here are some tips for teaching your kids to embrace savings. It’s up to you to decide when the lessons start; but certainly by age 8 or so any child is ready to learn:
Create Three Buckets for Financial Gifts. If your child tends to receive money for birthdays and holidays, you need to create a system that respects the gift, but also imparts some saving discipline. My advice is to divide a gift into three buckets: Spending, Saving, Donating. The spending bucket is just that: your child can use that money for anything they want. And I do mean anything. No judging. The Saving bucket is for an age-appropriate goal. (More on this in the next section.) I also encourage you to make charitable donations a part of a child’s financial upbringing.
Set up Age-Appropriate Savings Goals. Asking a young child to tuck away all of their savings bucket for college can be a stretch: For an eight year old you are asking them to focus on a goal that is more years off than they have been alive. Consider creating two or more savings goal. One should be short-term: maybe tucking away money that they can spend on the next family vacation. This is how you begin to teach the importance of delayed gratification. It may sound crazy, but this learning will make it easier 10 or 15 years down the line for your child to appreciate the value of saving for retirement. It’s all connected by the same mindset.
Live It. Make it a point to show through example how much pleasure you get from saving. If you are at the stage where your kids help you pay the bills, make sure you also share the monthly statement for your emergency savings fund, and how that account makes you feel safe and secure. I also encourage parents of teenagers to discuss in specific terms how they are saving for retirement Explain how you have money automatically deducted from your paycheck—or you are automatically transferring from a bank account-and having deposited into a retirement account.
Offer a Savings Incentive. Consider offering a matching contribution for any savings goal a child is working toward. For example, if your 15-year-old is determined to be able to buy a used car, you might offer to match every dollar she saves with a 25 cent, or 50 cent, or dollar-for-dollar match. It’s a form of parental encouragement that can help your child develop great savings habits.