Not only is it Secretary’s Day (I am soooo tired of political correctness) and Earth Day, it’s also National Teach Children to Save Day.
It’s never too early to start teaching your children to save and manage money. Most children take to it quite naturally and are excited to use money. More importantly, if you teach them now how to use money, they won’t handle money like you did in your early adult years, and if you’re anything like me, that is a good thing.
Here are a few great ideas to help them out.
Younger Kids (toddler to 12)
- Get three clear jars and add labels for the following categories: Savings, Spending, and Tithing (Giving). Teach your children what each category means and then give them some coins to put in the jars. A good recommendation is to save 40%, spend 50%, and tithe 10%.
In the future, pay them money (not an allowance) to complete jobs around the house and help them put the money in the jars. This teaches them how to work and that money is connected to their ability to work and work well.
- Take your kids to the bank and open a savings account in their name. Most banks have programs for younger savers. If you get a good bank, they’ll make the experience all about your kids, and they’ll remember it.
Katherine still points out “her” bank every time we drive by, and as a four-year-old, she has managed to save $12.01 on her own. It’s not a huge sum, but if she saves that much when she’s four, imagine what she’ll do when she’s forty.
Older Kids (12 years to 18)
- Sit down with your older children and explain the budget to them. Show them how the money that comes in is used to do certain things like paying for food and the house. Show them how much money you spend on them each month and, if they are ready, teach them how to take that amount and budget it for themselves. If they get it, turn that portion of the budget over to them.
Help them by not rescuing them once you do this. They’ll probably blow their money the first month, but when they have to wear old clothes and can’t afford to buy the basics they need, they’ll quickly learn. Make sure to provide lots of support and counsel them as needed.
- Teach your children about long-term savings and the power of compound interest. Teach them to take a set portion of their money and save and tithe before they do anything else.
- Start an ESP or 529 college savings plan for each of your children and provide the initially funding. Encourage them to manage and contribute to their own plans so that they have ownership of their college experience.
Coming out of college debt free is a dream that most people fail to achieve, and it puts our college grads on poor financial footing when their earning power is low and their wants rich. According to a recent article on CNN, the average graduating college senior graduates with around $4,100 in credit card debt on top of their student loans.
- Teach your children that debt is normal and that it is better to be weird.
Really Old Kids (19+ including adults)
- If you haven’t already, start your 401(k) at work and try to contribute 15%. If you don’t have access to a 401(k), establish an IRA. If you can’t contribute 15%, contribute what you can and committ to sending your future raises to your retirement fund.
- Start long-term savings plans for expected purchases (Google “Sinking Fund”).
- Take a moment and review your budget. Recommit to living your budget and to working as a team with your spouse.
- If you’re willing, convert your budget to a cash-based system.
There are only three key principles to successful savings: Action, Interest Rate, and Patience, and your kids can immediately understand most of those by simply doing it. Teach your kids to put money in savings, teach them to put money in accounts with good rates of return (that means more than a CD), and teach them to leave it alone.
And have a wonderful National Teach Children to Save Day!