[No B.S. Guide] How to Save Money for Your Kids and Teach Them About Finance
A dollar saved is a dollar earned as the old saying goes. But how do you get started teaching your children how to save?
As a business owner and father of two young girls, I understand the importance of financial intelligence, the power of saving, and the responsibility a parent feels to pass that knowledge on. As a parent, one of my biggest goals is to take care of my family while also teaching my children how to take care of themselves to ensure they have successful futures.
If you’re also a parent trying to consciously save for your children while also teaching them the power of a dollar, I have good news for you! With a few simple strategies and diligent work, you can help your children build a healthy financial foundation and educate your kids on the importance of saving.
4 Financial Literacy Lessons That Double as Ways to Save Money for Your Children’s Future
1. Set up a savings account
Your child can’t officially open a savings account for themselves until they turn 18. However, as their parent, you can open an account on their behalf. A wise decision would be to open a high-yield savings account, which earns a higher interest rate than the national average, growing your money over time without any additional effort on your part.
At first, the amount in the savings account is likely to be small and rather insignificant but over time you will see these small contributions add up. While you gradually make deposits to save for your child’s future, you will also be teaching them about the value of saving.
2. Start investing in their education with a 529 plan
If you want to save for your child’s college education, investing in a tax-advantaged 529 plan is a great option. You can choose between two types of plans: a savings plan or a prepaid tuition plan. Withdrawals from a 529 savings plan are tax-free when used for qualifying educational expenses. Prepaid tuition plans allow the account owner to pay in advance for qualifying colleges and universities, locking in the current cost of tuition. Investing early is always the smartest way to go about things because it gives the money the most time to grow.
3. Show your children the value of hard work
There is no way around the fact that hard work is the only thing that pays off in the long run. We have to work for the dollars that we earn, and very few people truly enjoy every minute of the work that they do. Children do not have any understanding of how this works, and it is something that they need to be taught in small ways as they grow up.
This is a lesson that is best taught at age-appropriate intervals. In other words, the younger the child, the smaller the task that they have to do to earn a little bit of money. Remember, a child can be taught to do some work for a minimal amount of money. It is not so much about the amount of money as it is about the lesson that they are taught along the way.
4. Start Small with Savings Goals
By setting small goals, saving becomes much more approachable. Start by contributing a small amount weekly. Choose an amount that won’t break the bank and you’ll be surprised just how much it adds up in a few months.
Try using a spreadsheet or personal finance app to track your progress and help you stay motivated to keep saving. Taking part in a savings challenge is another way to make achieving your savings goals more fun. Have your child take part in whichever saving process you choose so they feel invested in the growth of the account.
16 Ways to Teach Your Kids About Money
- Use a clear jar - Piggy banks are fun but if you use a transparent container to save, your child will be able to see the growth of their money over time.
- Counting exercises - Counting money at different times during the process of savings demonstrates how contributions add up over time, all while exercising their math skills.
- Use of games - Introduce basic finance concepts by playing games like imaginary store.
- Set a good example - By exemplifying good spending habits (like avoiding impulse purchases or buying while items are on sale) you teach your children to use their best judgment when making financial decisions.
- Teach them to earn money - Using chores as a way to make money is a much more effective learning tool than just handing your child a weekly allowance.
- Demonstrate that money is directly tied to items- By literally showing your child the price of something they want, counting the money out to purchase it, and demonstrating the transaction, the value of money is reinforced.
- Explain different methods of payment - When making purchases, familiarize your children with the different methods of payment - cash, credit, check.
- Let them make spending mistakes - By letting your child make their own decisions on what to do with their money - whether wise or not - you will be showing them what is or isn’t worth buying.
- A part-time job - Encouraging your child to make their own money through part-time work will make them take pride in their earnings.
- Open a bank account - Guide your child through the process of opening his or her own bank account. Explain the difference between savings and checking accounts.
- College fund - If your child is planning on going to college after high school, guide them towards setting savings goals for the coming future.
- Credit - Educate your teens about the benefits of paying with credit (like in an emergency situation) but emphasize the negative effects it can have on their financial situation if they can’t make payments on time, in full. In most cases, a safe mindset to have is ‘if you can’t pay in cash, you can’t afford it.’
- Taxes - Teens are often surprised when they get their first paycheck and see how much is taken out in taxes. Explain what taxes are for and help them to complete their tax return at the beginning of the year.
- The concept of budgeting - If your teen is saving up for a car, a school trip, or building a college savings fund, now is a great time to teach them about budgeting. Tracking what they make, spend, and save will give them insight on how to properly budget to achieve their goals and be financially responsible.
- Instill money-saving habits - By teaching your teens to make small decisions - like opting to make coffee at home rather than buying out- they’re more likely to leave home being financially responsible.
- Teach them to invest - When your child is ready, introduce the concept of investing to them. A beginner-friendly finance app can help with this.
As your child grows, their savings will too
By teaching your child the value of saving from an early age, you increase the odds of them being a financially responsible adult. Coming up with creative ways to earn money and save it can make the process both fun and productive. Taking the small steps to educate your child about money and starting a savings account from an early age will pay off greatly in the future.