Teaching Kids About Saving Money

The best ways of teaching kids about saving money.

Children want to learn about everything around them, including how we as a society handle money. After some observation, they make their own conclusions about money management. Are we teaching kids about saving money?

I realized that I may have been teaching my 3-year-old daughter the wrong thing when I saw her walking around the house with one of those fake credit cards from the junk mail we get all the time. She explained to me how she could now go to the store and buy anything she wanted. It was fun to try and explain that one to her.

Of course money management is something that can be learned at any age, but perhaps the best time is at a very young age when money learning experiences have smaller consequences.

A child could mishandle their spending allowance and maybe not be able to buy that gum they wanted. That is a lot better than not learning and mishandling money when older. Later in life, they could damage their credit or it could even be as dramatic as losing their house or going bankrupt.

Here are some steps to start teaching kids about saving money:

Step 1-Determine Savings Amount

Before kids make money it is probably a good time to sit down with them and set some ground rules on saving. Remember that it is a good idea to allow some spending. Consider setting a fixed percentage of income to save.

In the past my kids have saved as much as 80% of their income. The percentage of savings will vary depending on age and circumstance.

Step 2-Set Realistic Goals

It is a good idea to set realistic financial goals with your children. The goals should be both short term and long term in nature. This will help your child from getting overwhelmed.

A sample short term goal for a child would be to save $300 in one year. To break it down even more, the child would have to earn $25 per month.

Now set a long term goal...something like $15,000 by the time they turn 18 years old. Now break that down by year. Remember the child's ability to earn money will increase as they get older and adjust the goals accordingly.

Also remember to help your child understand why they are saving money. Is it for a college savings fund? Is it for a car? Is it for a down payment on a house?

Step 3-Follow up on Progress

Now comes the hard part...following up on progress towards the goals. For goals to be truly effective, progress should be measured and compared to the goals set.

It may also be a good idea to find a creative way to help your child visualize goals and progress. Filling up a piggy bank is a good way to visualize saving. You may also consider helping with visualization by doing a bar chart or some other simple graph in a spreadsheet.

If you need more help in teaching children about money click here.

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