Teaching your children the art of saving and investing is an essential part of helping them develop good money management skills. Parents need to take an active role in educating their children in money matters and fostering the positive financial habits that can often determine how successful they will be in the future. And it’s important to start when they are young.
Young children have a short attention span and teaching them about money is often a matter of timing. Although they may have little interest in money, they often have a very keen interest in what money can buy, like the new toy their friend just got. If there is something they want badly enough, it’s an opportunity for you to teach them about establishing savings goals and gradually saving enough money to be able to buy the object of their desire. To help them stay focused on their goal, have them post a picture of what they are saving for on their bedroom door. Saving to achieve specific goals provides a built-in motivation for the child to save instead of spend. You can provide them with even more incentive by offering to match all or part of their savings. For example, if they are saving money to buy a toy that cost £15, you could offer to contribute £5 once they have managed to save the first £10.
To get young children into the habit of saving regularly, give them their pocket money in denominations that make saving simple. Encourage them to appreciate the value of money. If you give them £5, give it to them in one pound coins and encourage them to save at least one pound of the five. Getting into the habit of saving at least 20% of all money they receive will stand them in good stead when they have a more substantial income. Although a piggy bank will suffice for younger children, once they are a little older, take them to the bank and help them set up their own account. Many financial institutions offer special bank accounts for children with no minimum deposit requirements and low or no banking fees. Let children make their own deposits as it makes the experience of saving much more tangible for them.
Having their own savings account is a way to introduce your children to the magic of compound interest. You can explain and demonstrate how savings can earn interest and grow. Help your child develop a chart to track progress towards savings goals and interest earned. Also teach them how to keep records of where all their money is going every month. A simple envelope system, with a separate envelope for each month, is all they need to keep receipts and notes on all the purchases they make.
Above all else, remember that your example is the best teacher. Your attitudes towards saving and spending will have a powerful influence on your child. Maintain open, honest interactions with your child about money matters and make sure that you are modeling financial responsibility and positive fiscal habits. Helping your children master the art of saving can have a profound effect on their financial futures.