Every year on April 22nd, Teach Children to Save Day is observed, with the goal of helping children become financially savvy from an early age. However, if you have children in your life, you need to spend time with them on a daily basis. According to a T. Rowe Price study conducted in 2020, just 49 percent of people describe themselves as "great" or "very good" when it comes to their understanding of personal finance, making the need to improve the financial literacy of the next generation even more critical.
Saving money is a habit that takes time to develop, and some people have not yet mastered the art of doing so. Consider the following: When it came to emergency expenditures in November 2020, 63 percent of Americans were living from paycheck to paycheck, with no money put aside for such emergencies.
Many individuals have found this year to be especially challenging in terms of saving. It is beneficial, though, to go through the lessons with your children in order to assist them to acquire the skill in both good and bad times, to the degree that you are able. With that in mind, here are some tips for teaching money management to your children—and maybe even yourself—in the cause of financial conservation.
1. Distinguish between wants and needs.
The first step in instilling the importance of saving in children is to assist them in distinguishing between desires and necessities. Explain that fundamental requirements include things like food, housing, clothes of a basic kind, healthcare, and educational opportunities. Wants include all of the extras, such as movie tickets and sweets, as well as fashionable shoes, a bicycle, and the most up-to-date smartphone. You may use your personal budget as an example to demonstrate how desires must take a back seat to necessities when it comes to financial planning and expenditure.
2. Allow them to earn their own income
Approximately two-thirds of parents indicated they gave an allowance to their children in 2019, according to a study by the American Institute of Certified Public Accountants (AICPA). Children earned an average of $30 per week for doing five hours of chores, according to the report.
Allowing your children to earn and save money gives them the chance to learn how to manage their money, which is essential if you want them to become savers. When you give allowances in return for tasks, your children are also learning the value of their own hard work, which is beneficial to both of you.
3. Establish Savings Objectives
To a child, being instructed to save his or her money without explaining why may seem insignificant. It may be more effective to assist youngsters in defining a savings goal in order to keep them motivated. If they have a clear idea of what they want to save for, assist them in breaking down their objectives into doable chunks. When your child wants to purchase a $50 video game, and they get a $10 allowance each week, assist them in determining how long it will take them to achieve their goal based on their savings rate.
4. Provide a location for storing information
When your children have a specific savings goal in mind, they'll need a safe location to keep their money until they reach it. A piggy bank may suffice for smaller children, but if they are a bit older, you may want to consider opening a checking or savings account for them at a local bank or credit union. They will be able to monitor how their funds are accruing and how much progress they are making toward their goal in this manner.
5. Instruct them to keep track of their spending
Knowing where your money is going is an important part of being a better saver. In the event that your children get an allowance, having them keep track of their purchases on a daily basis and total them at the end of the week may be an eye-opening exercise. Encourage them to consider how they are now spending their money and how much more quickly they might achieve their savings goal if they changed their spending habits a little.
6. Provide Savings Incentive Programs
One of the primary reasons individuals contribute to their employer's retirement plan is the matching contribution made by the business. After all, who doesn't like the prospect of receiving free money? If you're having difficulty encouraging your children to save, you may utilize the same concept to encourage them to save even more aggressively. If your kid has set a significant savings goal—for example, a $400 tablet—you might offer to match a portion of the money they have already saved up. Alternatives include rewarding your child when they achieve certain savings milestones, such as giving them a $50 bonus when they reach the halfway point.
7. Allow for the possibility of mistakes
Allowing children to make mistakes and learn from them is an important part of empowering them to manage their own finances. While it may be tempting to jump in and prevent children from making a potentially expensive error, it may be more beneficial to utilize that mistake as a teaching opportunity. Hopefully, they will learn from this experience and avoid doing anything similar in the future.
8. Take on the role of their creditor
One of the most fundamental principles of saving is to live within your means. If your child has an item they want to purchase but is impatient about saving for it, taking on the role of their creditor may help to teach them an important lesson about saving and patience. Consider the following scenario: your kid wants to buy something that costs $100. You might "lend" the money and collect payment from the allowance you give, together with interest, from the borrower. This is the lesson you want to teach your students: conserving money may mean postponing pleasure longer, but the thing you want to purchase will be less expensive if you wait longer to acquire it.
9. Bring Up the Subject of Money
40 percent of parents said they'd never discussed the stock market with their children, and 32 percent said they'd never discussed saving for retirement with their children.
If you want children to learn about saving, you must engage them in a continuous conversation about it. No matter if you plan a regular weekly check-in to speak about money or include money discussions into your everyday routine, the most important thing is to keep the dialogue continuing.
10. Set an Excellent Example
According to the same T. Rowe Price study, 23 percent of parents said that they had no savings for retirement, emergencies, education, or other financial objectives and that they had no plans to save.
Being a saver yourself may be beneficial if you want your children to learn to save. It is possible to promote saving as a family activity by doing a variety of things, such as getting your emergency fund in order, establishing a savings account, or just boosting your contributions. Additionally, you might opt to save for anything as a family, such as a large-screen television, a family trip, or a swimming pool.
Bottom line
Although Teach Children to Save Day occurs just once a year, there are valuable lessons to be taught by both parents and children throughout the year. If you are a parent, encouraging your kid to save on a regular basis may build the groundwork for a successful financial future. The suggestions provided here are an excellent place to begin.
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