As a culture, we have lost the knack of saving. We know we should. And we keep meaning to. But we are completely out of the habit. If you want your children to grow up knowing the value of saving, starting the habit early is key. Like brushing their teeth and saying “please” and “thank you,” saving can become something they do automatically because the habit was introduced early.
Some kids are natural-born savers. My son, Malcolm, is a prime example. He doesn’t have a lot of “wants,” so he finds it easy to squirrel away his allowance week after week. And since he enjoys watching his stash of cash grow, spending money requires a big motivation. For many kids, however, saving is something that has to be learned. Regardless of your current predisposition to saving, you are your children’s most influential teacher. So you may want to look at the example you are setting.
Saving is as easy as ABC: Make saving Automatic. Bury the savings. Be Consistent. Teaching your children the ABCs of saving may make the difference between a child who has a good savings ethic and one who spends every red cent he makes because he’s never learned to defer gratification.
A: Automatic Savings
When people decide to save what’s left over after expenses, very little goes into the savings account. Smart savers pay themselves first each month. And they set a definite amount and date to save. For kids, the savings habit starts when you introduce them to the idea of putting 10% of everything they get in the way of allowance or earnings into a Savings Jar or bank account. Started early in life, this habit becomes a natural part of managing money. And it’s a habit that will serve your children well for the rest of their lives.
B: Bury the Money
“Out of sight, out of mind” is the mantra for successful saving for those for whom the temptation to spend is powerful. Kids will soon find a good reason to spend the money left in their wallets, just as their parents find it easy to spend the money left in their chequing accounts. For young children, the ritualized act the money left in their chequing accounts. For young children, the ritualized act of putting that money in a container from which it is not taken on a whim creates a strong sense that money saved is untouchable—exactly what’s needed for a savings program to be successful. For older kids who are working, moving money from their regular account to a savings account achieves the same end.
Encourage your child to set up a separate savings account and to transfer a specific percentage of the money they are earning into that account each time they are paid.
The year before Alex headed off to university, she got her first real job as a cashier in a grocery store. We had The Talk about how much she would need for university and what I expected her to kick in. I asked her how much she thought she’d need to save to hit the mark. She decided that each time she was paid, she would transfer 85% of whatever she received to her savings account. That way it wouldn’t be where she could get at it with her debit card. Out of sight, out of mind!
I have had friends question my insistence that Alex pay part of her university costs. They think because I’m in a position to cover the whole thing, I should. I don’t see it quite the same way. If Alex wants a university education, she should be willing to put some sweat into getting one. I think kids are far less likely to blow their year on booze and partying if they had to stand for hours behind a cash register dealing with people and bagging groceries. I was upfront with my girl. If she didn’t have the get-up-and-go to earn her fair share, I wasn’t prepared to pony up my share. As long as she was taking her education seriously, I would be happy to help. I think that sometimes, as parents, we take our role in the relationship so much to heart that we undermine our children’s need to be part of the process and contribute. How can they value what they’ve never had to work hard to have?
If you want your children to save for their education, you can’t assume that it’s just going to happen. You have to talk about it. You have to set some expectations, offer suggestions for a plan of action, and follow up to see if they’re following through.
If your child refuses to save anything for their post-secondary schooling—hey, isn’t that what student loans are for?—take them through the numbers. Show them what it will cost for each year they are in school, including tuition, living expenses, books, transportation, and the like. Show them how much debt they will graduate with if they have to borrow everything they need. Show them what the interest rate will be on their student loans (you can get this off the Internet), how much interest they’ll pay in total, and how much of their monthly earnings they’ll have to commit to paying off that debt.
C: Consistency
Remember the story about the tortoise and the hare? It’s the regular, steady, ongoing additions that add up. Quick starts and stops are difficult to manage and bring far less of a sense of personal satisfaction. But a slow and steady approach to saving will win every time. That’s why it’s so important to encourage your children to embrace the Save 10% Rule. If they get $6 a week as an allowance, they save 60¢ a week. If they’re working and earning $75 a week, they save $7.50. Eventually it becomes a “no-brainer.” They save because they have internalized the rule. And over time, those slow and steady savings add up.
When Kids Won’t Save
If your child just can’t seem to save, you’ll need to do some digging to determine where the problem lies. Maybe she has expenses that keep cropping up that are throwing her best efforts off. Help your child re-evaluate her spending plan. Perhaps she is simply not receiving enough allowance to meet all her needs.
Or perhaps she’s not spending consciously or tracking her money, so she’s spending money that’s already allocated to a bill. If, for example, she’s responsible for her own cell phone bill but went shopping and spent the money on a new pair of shoes, that’s an example of poor planning. Hey, your kid’s human, and she may be giving in to many of the same consumer pressures you feel. You need to identify the problem and talk about a solution such as using a spending journal to track where her money is going. What you should NOT do is freak out or rant about how irresponsible she is. She’s learning. And there will be bumps along the way. To deal with the unpaid bill, point out that paying the bill must now be Priority One before money is spent on anything else. Then, using the spending journal, show her how to debit expenses she knows she must deal with before she can decide how much money she has to go shopping.
Motivating Kids to Save
Saving can be surprisingly easy and rewarding for children. It helps them to develop a sense of security and mastery over their money. They can see the results of their discipline and efforts as their account balances grow. And, as they accumulate savings, they begin to see their money earning greater and greater amounts on its own. “With our pathetic rates of interest?” you ask disbelievingly. Well, you may have to step in here to make the point a little more exciting for your kids.
One of the most effective ways of motivating a child to get into the savings habit is with a savings-matching program. You offer to match every dollar your child saves within a specific period of time with a dollar of your own. Alternatively, you might offer to match her savings if she can save a specific amount by a certain date. “Molly, now that you’re working regularly (or getting a higher allowance), you may want to consider saving a little more of your money. Here’s the deal. If you can save $60 by the end of the summer, I’ll match that amount so you can begin investing.”
A savings-matching program is an excellent way to inspire children to stay focused on long-term goals. How you choose to implement the program will be a matter of personal preference. You might decide that if your daughter saves her first year’s university tuition, you’ll spring for her second and third years. Or if your son decides to travel the world, you’ll spring for his Eurail pass or some other part of the trip. What’s important is that your child set a goal and actively work towards achieving that goal, and that you support these efforts.
Kids Who Want to Save It All
If you have a child who never spends his allowance, who wants to save it all, you have a problem. If you don’t have one of these children, you probably can’t imagine this being a problem. And if you’ve been bragging about the fact that your son saves every penny, you’ll resist thinking of this as a problem. But it is a problem nonetheless.
I have one of these. My son, Malcolm, doesn’t have a lot of “wants.” Given his druthers, he’d pile his money up in his wallet, never spending a cent. He puts away his formal “savings,” just as Alex does, but he also hangs onto the money he should be spending. I actually stopped his allowance for over a year. The conversation went like this:
“Do you know why I give you an allowance?” “Yeah.”
“It’s so that you can learn to manage money. If you never spend any of the money I give you, you’re not managing it. You’re just piling it up.”
“So?”
“So, until you start using your money, you really have no need for money. So I’m stopping your allowance. When you tell me you need money, we’ll start it up again.”
When the time came, Malcolm came to me and said, “Mom, I need some money.”
“What for?” I asked hopefully. “To buy stuff.”
“What kind of stuff?”
“You know, stuff. Like a new game for my DS.”
“Okay,” I said. “I’ll restart your allowance. Do you remember the rules?”
“We may have to go over them again,” he said, so we did. And he’s been saving, sharing, and spending ever since. He still doesn’t blow through money at the same clip as his sister, but at least he’s learning that the point of money is to get the things we need and want, even as we stash some of our cash for tomorrow.
If you have a child who is hesitant to spend, you have to encourage her to use her money and show her how to derive pleasure from spending. Suggest that it’s her turn to buy the ice-cream cones. Offer to buy the movie tickets if she’ll buy the popcorn. Encourage her to think about things she wants, things that would give her pleasure. Don’t worry about breaking her out of the savings habit.
You’ll keep reinforcing that by using the Save 10% Rule. But make sure she learns that the purpose of money is to pay for the things we need and to enjoy at least some of the things we want. Money is for saving AND for spending. We’ll talk about how best to manage the spending side of the equation next.