The habit of saving money may be a crucial life skill, but it’s not one that always comes easy. In fact, a 2021 survey by Lending Club found that as many as 54% of American adults were living paycheck to paycheck, with little or no money set aside for future needs.1
Families can have good and serious reasons why they may fall into this trap, but the savings habit is an important one to help kids establish when they are young. Teaching them about delayed gratification when it comes to money can help them guard against unnecessary spending and learn to value establishing control of their money. With that in mind, here are 10 steps you can take to get your kids on the saving bandwagon.
- Saving money is a habit that parents can teach their children at a young age.
- The first step is to explain important concepts such as savings, a budget, and goals—then keep the conversation going.
- Giving children an allowance can teach them the value of money—and of hard work, if chores are involved.
- Younger children might keep their savings in a piggy bank, but older ones might want to keep their money in a bank or on a debit card while working on their goals.
- Children can learn the importance of living within their means, which is one of the basic tenets of saving.
1. Discuss Wants vs. Needs
The first step in teaching kids the value of saving is to help them distinguish between wants and needs. Explain that needs include the basics, such as food, shelter, basic clothing, healthcare, and education. Wants are all the extras—from movie tickets and candy to designer sneakers, a bicycle, or the latest smartphone.
You can even quiz them on items in your home to drive home the concept. For example, point out items in their bedroom or the kitchen and ask them whether the object is a need or a want. This allows you to explain the idea that you have to prioritize what you spend money on, leaving some money for future necessities.
2. Let Them Earn Their Own Money
Two-thirds of parents said they paid their children an allowance in 2019, according to a survey by the American Institute of Certified Public Accountants (AICPA), with kids earning $30 per week on average, based on five hours of chores.2 If you want your children to become savers, allowing them to earn and save money provides them with the opportunity to learn how to use it. When you offer allowances in exchange for chores, they’re also learning the value of their hard work.
3. Set Savings Goals
To a kid, being told to save—without explaining why—may seem pointless. Helping children define a savings goal can be a better way to get them motivated.
If they know what it is they want to save for, help them break down their goals into manageable bites. If they want to buy a $50 video game, for example, and they get a $10 allowance each week, help them figure out how long it will take to reach that goal, based on their savings rate.
4. Provide a Place to Save
When your children have a savings goal in mind, they’ll need a place to stash their cash. For younger kids, this may be a piggy bank, but if they’re a little older, you may want to set up their own savings account at a bank or even get a kid-friendly debit card. Cards by the likes of FamZoo,3 gohenry,4 and Greenlight notify you when they make purchases and allow them to create their own savings goals.5
5. Have Them Track Spending
Part of being a better saver means knowing where your money is going. Tracking expenditures is a little easier with a bank or debt card app, but you can also do it the old-fashioned way.
If your children get an allowance, having them write down their purchases each day and add them up at the end of the week can be an eye-opening experience. Encourage them to think about how they’re spending and how much faster they could reach their savings goal if they were to change their spending patterns.
6. Offer Savings Incentives
One of the reasons people save in their employer’s retirement plan is the company’s matching contribution. After all, who doesn’t like free money? If you’re having trouble motivating your kids to save, you can use that same principle to ramp up their efforts.
If your child has set a big savings goal—for example, a $400 tablet—you could offer to match a percentage of what they have saved. As an alternative, you could offer a reward when your kid reaches a savings milestone, such as a $50 bonus for hitting the halfway mark.
7. Leave Room for Mistakes
Part of putting kids in control of their own money is letting them learn from their errors. It’s tempting to step in and steer kids away from a potentially costly mistake, but it may be better to use that mistake as a teachable moment. That way, they’ll know in the future what not to do with their cash.
8. Act as Their Creditor
One of the basic tenets of saving is to not live beyond your means. If your child has something they want to buy and feels impatient about saving for it, becoming your kid’s creditor can help to teach a valuable lesson about saving.
Say your child wants to purchase something that costs $100. You could “lend” the money and require payment from the allowance that you provide, with interest. The lesson you want to teach is that saving may mean delaying gratification longer, but the item you want to buy will end up costing less if you wait.
9. Talk About Money
In a 2021 T. Rowe Price survey, 41% of parents said they don’t like to talk with their children about money, with many expressing embarrassment about bringing up the topic.6 However, if you want kids to learn about saving, you have to nurture an ongoing discussion. Whether you schedule a regular weekly check-in to talk about money or make money chats part of your daily round, the key is to keep the conversation going.
The percentage of parents who need to either increase or replenish their emergency fund in the wake of the COVID-19 pandemic, according to a 2021 T. Rowe Price survey7
10. Set a Good Example
The T. Rowe Price survey found that only 59% of parents had any money saved for retirement, while only 55% had an emergency savings fund.8 If you want your children to become savers, being one yourself can help.
Getting your emergency fund in shape, opening a 529 savings account, or simply increasing your 401(k) plan contributions are all steps that you can take to encourage saving as a family activity. You could also decide to save for something together, such as a big-screen TV, a family vacation, or a pool.
How can parents encourage their kids to save money?
One way to encourage kids to set aside some of their money is by providing a place for them to save. For younger kids, that may mean getting them a piggy bank; older kids can open up a bank account or debit card of their own. You can also pay them interest on what they save, providing an incentive to set aside money for the future.
What are barriers to teaching kids about saving?
Research suggests that many parents are reluctant to even talk about money with their kids. A 2021 survey by T. Rowe Price found that 41% of parents avoided those conversations. To teach healthy behaviors regarding money, moms and dads have to find a way to discuss the subject in the home.6
How can parents teach kids to distinguish between needs and wants?
Parents can quiz younger children on items found in your own home—from kitchen utensils to clothing to toys—and ask them whether it’s something your family needs or simply wants. By drawing that distinction, kids start to get a sense that some purchases should be a higher priority than others.
The Bottom Line
If you’re a parent, making saving a regular part of your child’s routine can lay the foundation for a bright financial future. Building healthy habits at a young age makes children more likely to grow into adults who experience much less financial stress than people who didn’t grow up with this kind of training.