Do you remember when you first learned about the importance of savings? Maybe your parents gave you a piggy bank? Or, maybe you learned a hard lesson after overdrafting your checking account?
Teaching your children good saving and spending habits can help better prepare your children for the same challenges you’ve faced in your life and give them a headstart on a stable and successful financial future.
Although schools might cover the basics of financial literacy, it’s up to parents to teach vital money management skills and apply those lessons to real life. Learning how to count currency in the classroom is very different from getting an allowance, opening a kids savings account, and showing them how to use their savings as one of the many tools used to build wealth.
If you have kids, it might surprise you that children as young as three years old can understand the theories of spending and saving. Not only this, but their money habits are typically set by the age of seven, according to a study by the University of Cambridge.
It’s never too early to educate your children on strong saving habits that could last a lifetime. Here’s how.
Teach Them the Concept of Saving Money
While preschoolers and kindergartners are still grasping the concept of addition and subtraction, these youngsters understand monetary transactions and the idea of accumulating money— even if they don’t understand the significance behind having a savings buffer.
While the concept of saving is harder for little ones to understand, you can use visual tools, like a piggy bank, to help them understand savings in a hands-on way. You can also help your child create a short-term goal for them to work towards, like a toy or a preferred group outing, to teach them the concept of savings in a tangible way.
When they’re working towards their toy or trip, don’t contribute any funds. Instead, teach them that they need to accumulate enough funds in their piggy bank to achieve their goal, whether that’s by completing age-appropriate chores around the house or saving birthday money.
Children who are saving with a specific purpose in mind are motivated to save regularly and will develop a better understanding of the reason for saving money.
Provide the Opportunity to Earn an Allowance
Kids need money of their own so they can learn the basics of money management. As parents, we spend money on them anyway, so why not allow them the opportunity to earn it and have their own money for the day to day things they want. You may be surprised how less often you hear “Can I have that?” when it is their own hard earned money they are spending!
Household chores are one way to incentivise an allowance, but they are also part of contributing to a family household without the expectation of payment. I don’t know about you, but my spouse doesn’t pay me when I wash the dishes or take out the trash! Consider finding things that are not regularly expected such as pulling weeds, washing the car, helping a neighbor etc.
Doing this will teach them that money doesn’t grow on trees in the real world—it’s earned.
Create a list of age-appropriate activities, and explain to them that they will be paid for their work. The allowance they receive should also be age-appropriate and should reflect the expenditures and savings you expect your child to engage in.
A good rule of thumb is to pay $1.00 per year of age. So, for example, an eight-year-old child could earn $8 per week.
Show them How to Create a Budget
Budgeting is a simple concept that can be difficult in practice (even for adults).
If you don’t already have a monthly budget spreadsheet in place, consider creating one with your child to show them your monthly expenses. Or, even better, help your child to create a monthly budget.
If they want the latest “it” toy or electronic, challenge them to figure out how they can afford it using their current income and expenses. Maybe they’ll need to do more chores around the house or spend less when the ice cream truck comes around.
Fortunately, TFNB offers an easy-to-digest module about budgeting that can help kids understand the importance of mapping out their income and expenses to help them achieve their goals. Plus, it’s only 3-4 minutes long so even little ones with short attention spans can follow along!
Graduate From a Piggy Bank to a Kid’s Savings Account
Younger kids need visual aids, like the classic piggy or a clear jar, to help them understand the concept of savings.
However, when your child reaches around seven years of age, they understand the value of money management and are ready for longer-term savings goals. During this stage, you should consider transitioning your child from a piggy bank to a kids savings account.
A savings account is a great way to teach children the importance of each dollar and how to think more critically about their spending decisions. Our Kids Life Savings Club offers a savings account for TFNB customers 17 years of age and younger.
As an adult co-owner, you can log into the account online to show them their progress over time. After viewing their balance, they can decide whether to buy the stuffed animal today or save their money for a few months to buy the expensive electronic toy.
And parents take note: opening a savings account may help your child acquire a taste for money management that lasts well into adulthood. Research suggests that children who grew up with a savings account were more likely to hold diverse asset portfolios and accumulate more savings as young adults. That packs more financial power than your classic piggy bank!
Show Them How Their Savings Can Grow
Teaching your kids healthy savings habits is a great place to start. But if you want your kids to learn how to truly build wealth, then teach them how they can use their savings to grow their money as well.
To encourage your kids to grow their savings account, consider offering a matching contribution. For example, you can match them dollar for dollar after they’ve contributed a certain amount of money. When they see how $10 can instantly become $20 with your matching contribution, they’ll have a powerful incentive to grow their savings.
Our program teaches children that regularly contributing to your savings account is tied to rewards. With each $5 deposit, participants get a prize from the treasure chest.
Another perk? Doing this conditions them to take advantage of other important future financial opportunities in life, like an employer’s 401(k) match.
Use Technology to Create Teachable Moments
From TikTok to YouTube, Generation Z kids are quite adept at using technology. While these digital natives may be familiar with the latest social media apps, how familiar are they with online banking?
You can use your bank app to teach them how electronic banking works, vital money management skills, as well as other complex topics, like interest rates.
If your child has a phone, you can log into their TFNB Kids Savings Account regularly with them to get them in the habit of tracking withdrawals and allowance money.
Monitoring their account is also a good way to show them how interest works. Log into their online account to show your kids the interest rate and how much they are earning.
Interest rates aren’t the most easy (or exciting) topic for children. But with an interest bearing savings account and the online features that come with our Kids Life Savings Club, you can help them wrap their head around the concept.
As they grow older, your conversation about interest rates and banking rewards could lead to conversations about compounding interest or investing in stocks.
Create a Savings Plan for College
Teenagers might be familiar with the costs associated with college, but it’s not necessarily on younger kids’ radars. With college costs rising, it’s never too early or too late to start building their college savings.
If your child receives an allowance or has a part-time job, a portion of those earnings could be added to their savings account.
We offer a handy college savings module that can better help your child understand the costs of attending college, help them understand how much they need to save, and understand their options.
Model Good Saving Habits Your Kids Can Follow
You probably know by now that kids are sponges. They repeat what they see and hear at home. So, it’s up to you to be a good financial role model for your children.
If you want your children to adopt good saving habits, they need to see you making smart spending and saving choices as well.
For example, don’t complain about how you spent too much money on groceries and then take your kids on a shopping spree. That sends a mixed message. In short, you should practice what you preach.
Also, don’t be afraid to talk about money matters with them. You don’t have to share your net worth with your children, but if you see a learning opportunity, take advantage of it.
For instance, if you’re switching over to a new bank, show them the research you did and how it informed your decision.
Develop Your Child's Good Saving Habits at TFNB—Your Bank for Life
Educating your children about personal finance is a process that can last a lifetime. But if you put in the effort and communicate a consistent and clear message, your children will develop good saving habits that will serve them well when they enter the adult world.
If you’re ready to make your lessons a little more tangible, talk to one of our TFNB team members today about opening up a savings or checking account for your child. For children under 17, you or another guardian also jointly own their account, so you can guide their spending and saving habits.
At TFNB, we’re here to help your family now and in the future. That is why we’re Your Bank for Life.