Encouraging my kids to save

This is a guest post by Robert, who lives in Calgary and worked as a financial adviser before retiring at age 35. He is married, has three kids and has returned to school with the goal of eventually living and working overseas.

My oldest son, Michael is eight years old and money burns a hole in his pocket. He earns $5 once or twice a month for returning bottles and cans that we use for recycling. This gives him some money that is his own, and he can do whatever he likes with.

At first, he spent it on candy, but I soon realized that he has a lot of trouble holding on to money. One time, he spent all $5 at a bake sale at school where each item was $0.50. He got more food than he could eat, just to have the satisfaction of spending his money. One of the side benefits was seeing him being generous in sharing the treats that he bought. I think that having your own money that you can spend is a necessary first step to be able to build the confidence for saving a portion.

After Michael had an opportunity to spend his money regularly for about a year, my wife and I decided that it was time he learned to save. He often wants to play games on my iPhone and he has talked before about having his own. Maybe eight is a little young, but we told him that if he saved his own money, he could buy an iPod Touch. This was triggered by a gift of $100 from an aunt (who visits rarely). It made the goal realistic, but also made us realize that we weren’t comfortable letting him make the spending decision all on his own. (We can’t handle $100 worth of candy and cheap toys.)

Having a goal is a good motivator. Now Michael is able to approach “I want” situations as a choice between what he wants now (usually only briefly) versus the iPod Touch that he’s saving towards. But having cash around was still a problem, so we went to the bank and opened a savings account for him. (Pro tip: even if the bank offers a kid’s account, it might be far easier to open a second account in your own name.) Michael is very proud to have his own debit card (used only for deposits so far) and he keeps his receipt from each deposit to track his progress toward his goal.

It’s simplistic, but having a bank account has encouraged my son to be responsible with money and having a medium-term goal (he’ll have it by Christmas) has given him practice with trade-off type decisions (this vs. that, now vs. later). How do you teach kids to make smart choice about money?

8 thoughts on “Encouraging my kids to save”

  1. My mother used to purchase savings bonds for her grandchildren, so I used that as a teachable moment.

    Daughter : What are these for?

    Me : This is money that will earn more money to use later for something you want.

    Daughter ; Like for a horse, or a car, or a house?

    Me ; or college or university

    Daughter : what do you mean earn money?

    Me : – Than bank pays you money if you let them hold on to it for you.

    Daughter : Can I give the more money to hold on to, like birthday money?

    Me ; Yep.

    So she did, as an incentive, for every $100 she put in her savings bonds (yes I know, probably a horrible product, but I was a lot dumber then) I matched the money she saved to reinforce the feeling.

    She did this until I gave her more control over her money (see my post on this)

  2. My boys get a modest weekly allowance, and we require that they split it into three (non-equal) parts – giving, saving and spending.
    They choose (with help as wanted) what they’d like to support with their giving. For instance, my ornithologist 9 year old is putting his aside to ‘give to birds’ – probably through sponsoring himself in the Baillie ‘Birdathon’.
    The savings portion can be for a known medium- or long-term goal, or for a future unknown. When it’s large enough it moves into a saving account.
    Spending is for now or soon, and gets used for all sorts of stuff from candy to toys that are broken within 10 minutes to books to birthday presents.
    We find that this approach inculcates the ideas of generosity and deferred spending, while still allowing them to ‘waste money’ – and to learn from that too.

  3. Nerode, splitting the “income” in that way is a really good idea. It’s something that we need to do a better job of in my family.

  4. I like the idea of allowing children to earn money for chores or other type of simple work and then watch them learn how to deal with the money. They may spend it all at first but then realize that holding onto the money and saving it could buy something they really want. Overall it teaches money management and hopefully a little budgeting.

  5. We have two grown boys (from my husband’s previous marriage) and two younger daughters. We handled allowance and money management the same way for both “sets” of kids, until recently. We have learned that what works for one child may not necessarily work for another. They are all “wired” differently.

    Our oldest son was a saver. He wouldn’t spend a dime for months so that he could buy a fish tank and a turtle (or whatever his goal was at the time), while our other son spent whatever he was given. They were both required to set aside for Tithe and for Savings. But the younger boy would sometimes dip into to those funds to buy a soda at the corner store, or something equally frivolous. We never went beyond the three categories (spending, saving, and giving) with them.

    Now the boys are in their twenties and living on their own. Neither one of them handles money well, although the older one is far better at avoiding debt, and scraping together money when he needs it. The younger son still spends every dime he can get his hands on, and does not pay his obligations.

    What is interesting to me is that we did the same with them as my parents did with me, and I have always been a very careful money manager. The simple strategy works for some, but not for others who approach situations differently.

    So we decided to handle the money training differently with our girls. When they hit high school, their allowance will be increased significantly because they will then be responsible for purchasing their own clothes, shoes, and lunches at school. This requires some budget planning of their own, because choices must be made between wants and needs.

    We think that, by putting more of the responsibility onto their shoulders, they’ll come to understand the repercussions of their choices rather quickly, while still in the safety of living at home.

    All this to say, speaking from some experience, I think it’s better to have the child be increasingly more responsible for specific purchases as they grow older (so they learn to plan and to say ‘no’ to more ‘junk’) rather than to stick with the more general spending-saving-giving scenario beyond a certain age.

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