Remember those piggy banks from when you were young and how the majority had to be broken in order for you to get your money back? They were set up that way for a good reason… to teach you that saving was a lot more important (not to mention a lot harder) than spending.
When you did finally decide to buy something, you were a lot more selective— since you knew how long it took to fill your porcelain friend up. While few money lessons in life are ever quite as instructive to kids as the piggy bank example, these five tips complement it nicely.
1. “Your Savings Account is a Bigger Piggy Bank”
Even before your child is ready for their first allowance, have a savings account ready for them to deposit into. Explain that by consistently saving, their money will really add up; but that some people also choose to withdraw theirs, in order to purchase items. You can also underscore the fact that the accrued interest involved with putting their allowance in a savings account (even though modest) provides an extra incentive for keeping it all in one place.
2. Allow Them to Earn Their Allowance
Don’t simply gift your child an allowance, make them earn it! And what better way for them to do so than by working for it? The specific household chores they’ll perform isn’t what’s important, but making sure that they consistently give an honest effort is. The rationale behind these requirements is simple: grown-ups work hard for their money and so should kids. This process also teaches them the value of a dollar i.e. “x amount of chores equals x amount of money.”
3. Have Them Decide Whether to Spend or Save
With the value of hard work and saving their money already firmly established, tell them that the decision to spend or save is entirely theirs. However, be quick to add that while this is true, taking too much money out of their savings comes with strict consequences: namely because a savings account, just like a piggy bank, takes a long time to put back together, once it’s been broken!
4. Should They Choose to Spend, Let Your Child Pay the Cashier
Don’t be surprised when your child decides to spend, but do insist that they pay the cashier themselves, as this gives them ownership over their choice. It also provides a great opportunity to internalize the cost of things and calculate correct change.
5. Show Them Your Bills
Teach them that all their decision-making and hard work amounts to either staying within or going over budget— and that this is the same important process that adults keep track of each month. Highlight how your household budget is their “allowance budget” on a much larger scale and that when you go over budget, there’s no one to bail you out. This should drive home the point that staying under budget is always the best practice.
Far from being overwhelming, the financial training outlined here will better prepare your child for their eventual real world experiences. The best part is how their new knowledge regarding the importance of saving their money transitions perfectly into their learning how to invest it; because if a savings account is a bigger piggy bank, a successful investment is the biggest one of all!