If there is one thing that parents should invest time and effort in teaching their kids, it is how to save money. For far too long, parents have brushed aside the idea that kids will learn to manage their own money when they become adults, and this is the main reason why many fall into the trap of having bad credit scores. If you want your kid to grow up with a better sense of money and savings, you have to teach them as early as possible. Here are some tips to help you get started:
1. Teach the Difference Between Wants vs. Needs
As a parent, it is your responsibility to teach your children the difference between wants and needs. Needs include essentials, such as food, clothing, and shelter. Wants are things that are nice to have but nonessential for their existence. For example, make them understand that while they can live without a mobile phone, they cannot live without food to eat. You may also explain it further when you show them how you assign a budget on household spending.
2. Let Them Earn Money
One way of helping your children learn the importance of saving money is when you provide them with opportunities to earn money. You can make a deal with them that they will earn if they do their household chores without being told to. Or better yet, they can come up with other innovative ideas on how they can earn money without relying too much on you.
3. Set a Savings Goal
For kids, having their own savings without a clear goal may seem pointless. Why would they save money if they don’t have a purpose for doing so? At this point, you should help them build a savings goal. Ask them if there is one thing that they have been itching to buy based on what they understand of wants vs needs. Then, aid them in breaking down these goals. Teach them how long they have to reach their goal based on how much they are setting aside from their allowance. This way, they have an understanding of their savings rate.
4. Give Them a Place to Save
Now that your kids are starting to save money, it can be tempting to use the money when it is easily accessible to them. The best way to deal with this is to open a savings account for kids. With their own account, they will have a sense of ownership. Plus, it will be easier for them to see their money grow, and it could become an added motivation for them to continue saving and growing their money.
5. Teach Expenditure Tracking
Aside from teaching them to set aside money, you also have to teach your kids how to track their spending. Once they have a list of what they are spending and how much money they are taking off from their savings, they will have a better understanding of their cash flow. When they track their expenses, it will be easier to see what areas they should be adjusting if they want to reach their savings goal fast enough.
6. Provide Savings Incentive
As adults, we know how important it is to be rewarded for our hard work. The same thing is true for your kids. Once they reach their monthly savings goal, it will be a good idea to reward them by matching their savings. It will help keep them motivated and continue saving.
Teaching our kids the value of saving money is part of our responsibility. Once you make them understand the importance of savings, it will become part of their lifestyle, and you can live a guilt-free life knowing you made a difference in your child’s future.