Our money habits begin young. Learning the value of saving at a young age can help children grow into regular savers as adults. But instilling a savings mentality into your children isn’t always easy.
The best way to encourage sensible spending habits is to exhibit them. Kids learn by mimicking adults around them. Involving children in preparing shopping lists, for example, teaches them how to avoid a common spending trap: impulse buying.
Financial adviser Marc Bineham, managing director of Noall & Co, says children are fast learners when it comes to money. “Children learn quickly the value of money, what it can do and what it can buy,” he says.
To get started, Bineham advises parents to encourage their children to save for a specific goal, such as to buy an iPod, a cricket bat or another item they covet. “Saying you can save money for a rainy day makes no sense to a child,” he says.
Giving your child an end result they can see acts as an incentive to kick start a savings habit.
“Once they see the incentive, give them a realistic timeframe, such as three or six months,” Bineham adds. “Anything longer, such as two years, is too long for a child to grasp and they will lose interest.”
The next step is to encourage your child to adopt a consistent approach to saving money, such as putting aside a percentage of their pocket money into a savings account every week – not every now and again. “This applies to any person trying to save, whether adult or child,” Bineham says. “You need to do something on a regular basis.”
To make the goal more tangible, help your child map out their savings journey with a spreadsheet to show them how many months it will take to reach their target. This also teaches them how the amount they save each week – small or large – can affect the time it takes to meet their goal.
“The whole point is to teach them that if you have a target, you need to dedicate an amount on a regular basis within a certain timeframe,” Bineham says. “Once they understand this, you can set a bigger goal and a longer timeframe.”
Another valuable lesson you can teach your child is how compound interest works by encouraging them to put aside savings into a bank account for a long-term goal. A savings account, or a high interest account in particular, can show children how money grows over 12 months or two years thanks to interest earned.
With the right guidance, children can learn good financial habits early – and carry them into adulthood.