5 tips to teach your child about saving money
Updated: Dec 11, 2020
The current generation of children faces exceptional financial challenges. High university fees, rising house prices and stagnant wages mean that preparing a child for her or his financial future requires ever more thought and planning.
Yet, equipping a child for their financial future need not be daunting. Much of it comes down to the lessons a child learns, and the small steps parents take to put some money aside while their children are young.
Irrespective of whether a child is taught about money, they will always develop financial habits – and some are more helpful than others. But if parents and schools step in early to give children confidence in handling money well, that child can go into adult life prepared to make sound financial decisions.
1. Need vs. Want:
One of the first and most important lessons to teach your child is the difference between a wish and a necessity. Explain that needs include the basics, such as food, housing, and clothing, and wants are all the extras. You can use your own budget as an example to illustrate how wants should take a second place to needs in terms of spending.
2. Set savings goals:
Helping children define a savings goal can be a better way to get them motivated.
3. Have them track their spending:
If your children get pocket money allowance, advise them to write down their purchases every day. This will encourage them to think about how they’re spending and how much faster they could reach their savings goal if they were to change their spending patterns.
4. Offer savings incentives:
If you’re having trouble motivating your kids to save, you can use “matching contribution” principle to ramp up their efforts. For example, if your child has set a big savings goal, for example, a $400 tablet, you could offer to match a percentage of what he or she saves.
Alternately, you could offer a reward when your kid reaches a savings milestone, such as a $50 bonus for hitting the halfway mark.
5. Set a good example:
If you want your children to become savers, being one yourself can help. Parents and grandparents can also help their children by putting money aside – even the smallest amounts can make a big difference, especially if they start investing when children are young.
Finding the right tax-efficient vehicles could, of course, help maximise what you save for your children.
Anyone feeling daunted by the prospect of preparing their children financially for adult life should remember that investing is a medium to long term commitment. As your children grow up, so, too, will their financial acumen and assets.
However you want to invest, you need to choose a simple, flexible way that gives you every chance of success in providing for your child's future.