Raising Smarter Savers
When it comes to children and money, we have good news and bad news. The good news is that the majority of children are fortunate enough to receive an allowance. The bad news is that, according to research, only 1% of these children actually put a portion of their allowance towards savings.
While as a parent you’re probably used to good and bad news (hello parents’ evenings), you can’t singled-handley raise the financial IQ of an entire generation. However, you can take some practical steps to up the saving game of your own children and gear them for wiser financial decisions (one can only hope, right?). So, here are our top six tips to get you and your young brood started on an early successful savings journey.
✔️Make saving fun
This may seem pretty obvious, right? But if you think about it, there are grown adults who avoid saving or aren’t very good at it. That is because saving is often viewed as a chore or sacrifice. While it is definitely one of the hallmarks of good financial behaviour, that does not mean that it has to be overly serious or difficult especially when it comes to children in the pre-adolescent category. Make saving fun for your children by giving them an interesting piggy bank (consider even making one together), encouraging them to start a small business selling cookies, setting savings goals where you’ll double their earnings, or playing games with fake money (think monopoly). These strategies will help to cultivate the attitude that even finance can be fun.
✔️Talk openly about money with and around your children
Schools don’t really focus on teaching children even the very basics of good financial health so it's up to you to do this. Money shouldn’t be a taboo subject and it is important that your children understand saving within the context of other healthy financial habits like giving to charity or spending on a well-earned toy. By removing the mystery around money from an early age, your children will not only know more about financial matters, but they are also more likely to pass this knowledge on to their own children because they see the very act of sharing the information as important.
✔️Expose your children to digital banking
You could go about teaching your kids to save old school with coins and jars, but you really want to be the cool parent, right? A core part of being a cool parent is keeping with the times and making sure that your children are able to do the same. Give your children access to digital banking, as soon as you deem appropriate, by taking them to the bank of your choice and setting them up with their own account and debit card. Most banks offer youth accounts these days, and, as an added bonus, your child will likely be able to choose their own unique artwork for their card. In line with this, it is important that you teach your children the ins and outs of card swiping, and stress pin security.
✔️Teach them to invest like Buffett
Now, before you start to protest, we are not suggesting that you swap your seven old’s night time story with Buffett’s book, Principles from the Sage of Omaha, but it is important that children learn the patience and self-discipline when it comes to finance early on. The idea is to get children to think differently about how to manage money. By opening a joint investment product, you can show your children the value of routinely paying themselves the first of each month and watching their product’s value grow overtime.
✔️Help your children distinguish between wants and needs
It’s easy to tell your children to save and, if you’re lucky, they might even do it. But there is nothing more heart wrenching than seeing your eight year old save up six weeks worth of allowance only to watch him blow it on a toy he’ll be bored with in two weeks. In order to avoid this, teach your children to distinguish between wants and needs. You can do this by helping them draw up a budget for the month which details, for example, their needs, like stationery, and their wants, like seeing a movie with a friend or buying a toy. This can help reinforce the necessity of saving even if they do need to spend.
✔️Praise your children for saving
Positive feedback can go along way. Your child is more likely to save if they draw a strong association between the behaviour and the positive feeling. In fact, saving has even been shown to increase the self-esteem of people so really it's a win-win situation. What this means is that, by saving, your children are learning to negotiate with themselves and say ‘no’ to present wants in light of future rewards. This self-control is likely to emulate in other parts of their life especially if they are made to feel positive about their savings decisions.
✔️Be fair in your allowance strategy
It makes sense, if you have more than one child, that you would want to treat them equally and avoid favouritism (right?). This means that you should be equitable when doling out allowances to your children particularly when they differ quite substantially in age. It is unlikely that your six year old is going to require the same funds as your sixteen year old and there are several strategies you could implement to ensure that their allowances are fair. You could assign on an age-weighted basis (you can give “raises” every year or quarter) or you could pay wages for chores, assign equal amounts of work, and an equal pay rate.
✔️Lead by example
You are your children’s most visible and important role model. While this may change during their rebellious adolescent years, it is worth capitalising on by practicing what you preach during any development phase. Whether you see it or not, your children are always watching so follow through with the financial advice you give to them in your own life. Mundane life chores, like grocery shopping, are a prime place to reinforce what you have taught your children and execute on some of your saving strategies like comparing prices or shopping for sales. Consider even taking your children with you to the bank to show them how you deposit money into your savings account. After all, monkey see, monkey do.
By taking these six practical tips into your home and your children’s playroom, you are likely to cultivate a habit, and even a respect, for saving in your children. While the little steps may seem unimportant now, it may be that, in ten or fifteen years, the little steps have added up to something quite significant. That is how saving works after all.
