Instead of forcing kids to save, consider instilling in them the passion for saving.
Many parents force kids to save: 10%, 30% or even half of their allowance, earnings and gift money. And it works – at least until they hit their rebellious teens, when they’re bound to insist, “It’s my money, I can do what I want with it!” And they’re right! The other problem with forcing them to save is that some kids, when they leave home, will likely sigh with relief and think, “Thank goodness I don’t have to save anymore!” The goal is to get them to want to save. Forcing them may successfully get them to save while they’re under their roof, but it won’t necessarily compel them to do so once they’re out on their own. And that’s just when saving becomes most important!
You can guide your kids to develop lifelong saving habits by helping them to set goals that are meaningful to them.
Use your kids’ natural interests. If your daughter loves skiing or playing guitar, for instance, and she falls in love with a $200 pair of skiis or new guitar, use that as an opportunity to make that a saving goal.
Say she gets $15 a week allowance, $5 of which you’ve earmarked as discretionary money. Help her identify different strategies:
Save all of it: (foregoing DVDs, movies and pizza with friends): It’ll take about 10 months to save up for the item. That’s beyond most kids’ (and adults’) tolerance for delayed gratification. Consider this a benchmark against which to rate other strategies.
Get a job: If your daughter began babysitting or got herself a paper route, earning $20 a week, she could save up $200 in 10 weeks.
Save and work: Add $5 of weekly discretionary allowance to the $20 earnings, and she can save up $200 in eight weeks.
For young children: Set more modest goals – things they can save for in much shorter time periods. Offer to let them do extra chores (on top of their usual household chores for which they’re not paid) to help them earn and save a bit faster. Tape a picture of what they’re saving for onto their bank, and chart their progress visually, perhaps with a picture of a thermometer you color in. Goals can be powerful motivators, but kids often need a little extra nudging to keep on track. They are likely to get sidetracked by temptations to spend on a new DVD, or the latest fashion or fad. That’s okay, but you can help keep them closer to their saving program by reminding them how much spending now on a whim will set them back from their goal. What does that mean in dollars and time? But don’t push; this is all a learning experience. The more you try to control their actions (up to a point), the less they are bound to learn.You can also sweeten the pot with some saving incentives. If you feel your child’s goal is particularly constructive and worthy, you can offer to kick in a certain amount. You can double the interest rate at the bank’s where they deposit their cash or you can offer them a challenge grant (once they save up half, you’ll contribute the other half – or however much you’re willing to shell out).The ebook, Kids and Money Guide to Learning Capital details out you can set up a 401(k)-like matching grant.