Tips for teaching children good savings habit
In order to secure a child’s success is to teach them money values. Money values are learnt very early by children, namely by following the example set by their parents or by the dominant adults in their life.
Money management courses are run by schools. Values such as earning, saving, responsible spending and good debt management are the foundation to assisting a child in setting themselves up for a stable financial future.
Easy strategies for parents
Some easy strategies that parents could adopt include the following:
Teaching kids what money is for
Firstly parents can begin with informing children how money fits into their life. Parents should make sure that kids know money is earned by working hard so that they can have the things they see around them. Letting them know that their favourite toy and the dinners they love all come from money is a valuable start.
If parents do this, it makes it more personal and helps them understand that the things they like and enjoy stem from working hard and earning money.
Help them comprehend the value of money
This means letting them know how much things cost. Begin small, let them know that a Chocolate bar is $2 and inform them of the costs of everyday items. Try and make it fun by getting them excited about how many chocolate bars something would cost, ranging from a house to a car.
Ensuring they understand the different values of things can really help them later in life when trying to understand what different items are worth and what is a good deal versus a bad deal.
It is suggested that children get experience in handling both notes and coins when dealing with money to indicate the value of both and ways to save them both.
Introduce pocket money and how it works
After ensuring they understand what money is for and how much things cost, they need to understand that pocket money will give them a chance to earn their own money. Children tend to be very excited at the prospect of having their very own money so parents can play up the fact that they have the ability to earn money and it is 100% theirs.
Pocket money must not be seen as a free hand out on a weekly basis, but instead a means for them to work hard in order to receive money in return. Pocket money if given for no reason can dramatically reduce the motivation and comprehension of a child when dealing with money, as this is believed to be one of the causes and effects of over spending and debt when older.
How can they earn pocket money?
If children can understand that pocket money will come if they work hard, they are now in a position to find ways in which they can work hard in order to earn money.
This can range from very small things for smaller children such as helping Mum feed the pets or watering the flowers in the kitchen. It will still help them understand they are helping out for the pocket money they will receive.
As the child gets a little bit older, they can start to elaborate on what they are required to do in order to earn pocket money. At this point, it’s an opportunity to teach them how they can actively help the household out while earning money for their goals and savings.
They foot part of the cost
Parents can set rules, such as the child must save half of the purchase cost for items they want. For example they may need a pair of joggers. The parent decides that an average pair of decent joggers can be acquired for approx $100, if the child wants a more expensive pair of joggers they would need to contribute the additional cost.
Start an investment plan
If a child has a part-time job, parents should encourage them to save a portion of each pay into a bank account and consider buying shares or investing into managed funds as the amount builds up
Parents could buy a small share portfolio for the child and encourage the child to monitor the performance and help with decisions to buy and sell
They could also take a portion out of the child’s pay from a part-time job to get them used to paying “tax”. This amount can be invested into a savings plan for the child.
Parents should teach children that there are limits on what they can buy, how borrowing money works and the cost of debt.