January 19, 2021
All parents want their kids to grow up to be financially independent and able to afford the important things in life without getting buried under mountains of debt. You can set your child on the right path by teaching and modeling one of the most important financial skills: saving for the future.
The key is starting early. If your child is old enough to use their imagination to play make believe, you can begin teaching saving skills. Research shows that kids as young as 3 can already understand value and exchange, and further research by the University of Cambridge has revealed that children as young as seven can learn the basics of finance.
Regardless of your child’s age, it’s never too late to teach smart saving choices. Learning to save brings kids a sense of accomplishment and an understanding of the costs associated with things they want – and need.
Young Children and Delayed Gratification
The key to being a good saver is becoming comfortable with delaying gratification. Teaching small children delayed gratification will help them resist the urge to make impulse purchases in the future. It’s as simple as withholding a sweet treat until later, having your child wait to enjoy screen time until after the family has eaten and cleaned up together, or resisting the urge to buy the toy your child is begging for. Delaying gratification lets your child learn the joy of “waiting for it.”
Earn and Save
When he is a little older, your child can “earn” checkmarks or stickers on a chart by helping to clean up toys, being cooperative, or going to bed without a fuss. When he’s earned enough stickers, he can pick out a small toy at the store. He’ll learn the first step in “earning” what he wants and saving up for it.
Children love to pretend to have grown-up jobs. After all, playing pretend fireman or chef is fun! Extend the pretend play by talking to your child about getting paid for a job. Pay pretend money and explain how a worker might spend his money. In addition to pretending to put some money in savings, begin talking about budgeting, too. Divide “earnings” between money used for what he will “need” to pay for – food, housing, a trip to the doctor – and what he “wants” to pay for – a toy or a book.
Once your child is old enough to be given money as allowance or for completing small chores, she can learn the difference between having money for now and for the future. Clear “piggy banks” are ideal to allow children to see their savings. Find pictures of an item for which your child would like to save. Count the savings often and tell your child what could be purchased with the money she has, as well as how much more she will need to save in order to buy the goal item. Borrow money from your child when you’re low on cash and pay interest when you give the money back. Explain that this is the way real banks work.
As your child grows, teach her to divide her money into categories. While she will probably want to spend some of her money, the rest can be divided between short-term savings for a special item and long-term savings that will be important to her future. She can also choose to place money into a giving bank to save for charity purposes.
If you have more than one child, encourage some healthy competition by making saving into a friendly game of “who’s the best saver.”
As your children become more tech savvy, they can use apps to keep track of their money. Rooster Money is an allowance and chores app that allows kids to split their money into different categories and connects to a parental account for easy transactions.
Kiddie Kredit is an app that teaches the basics of credit through non-monetary rewards. Children redeem “kredits” in order to get the rewards. Use too many “kredits,” and the “kredit” score goes down. The app features curated online games that teach the basics of finance.
As your child gets older, begin to share information about how you budget for your family. Explain income vs. expenses. As soon as your child understands that he will someday want to attend college, talk about your long-term savings goals such as retirement and your child’s important long-term savings goal: college. Show your child his 529 college savings account and your savings goal.
“I explain that the money goes into an account that we will not touch,” says an account owner with South Carolina’s Future Scholar 529 College Savings Plan, “so there’s no temptation to spend instead of save once the money has been placed in the account.” Show how compound interest works. Talk over ways your child can add to college savings by contributing money earned to help reach your 529 savings goals. Give your child a sense of ownership in his future.
Above all, don’t be reluctant to talk over finances with your child. Studies show that children whose parents actively teach financial skills grow up to be more financially prepared. So wring as many important savings lessons as you can from everyday life – and make it fun!
About the author: Curtis Loftis is the State Treasurer of South Carolina. He also serves as the administrator of South Carolina’s Future Scholar 529 College Savings Plan. Visit treasurer.sc.gov or futurescholar.com for more information on ways to save through a 529 plan.