Lessons You Can Teach Your Child About Saving
Effective money management is a vital component of long-term financial success. Working to a budget and saving money can help to reduce the stress of living costs, bills, and everyday emergencies, but also plays a big role in being able to afford larger ticket items such as deposits for a house, cars, weddings, and dream holidays.
However, one of the biggest issues with money management skills is that the application is learned over a long period of time. That means that many people pick up bad spending and saving habits that hold them back. Of course, new habits can be learned but it’s easier to implement positive spending behaviours from an early age.
Providing your child with lessons about saving can have a huge positive impact on their future financial stability and their ability to truly understand the value of money. With that in mind, here are few lessons you can teach your child about saving.
Avoiding Impulse Buys
It’s not uncommon for children to ask their parents to buy them all kinds of things when they’re out shopping. Retailers are clever and know that eye-catching advertising and strategical placement will lead to children desiring the next must-have toy.
Of course, parents love their children and want to please them and/or avoid tantrums in a shop aisle, so will often give in and buy the product. The issue here is that the lesson being learned by the child is that they can simply ask for something and someone else will buy it for them.
Instead, it can be worthwhile for parents to allow the child to buy the product soon, but only once they have earned the money to do so by completing chores around the house. This lesson teaches a couple valuable things:
1. Impulse Avoidance — Setting a waiting period before purchase can often lead to the child realising that they don’t want the item as much as they thought they did.
2. Value of Products — When a child must do chores to earn the money to buy a toy, they realise the true value of the product.
Setting Long Term Goals
Avoiding impulse buys is a great start to money management but you should also teach your child about planning for larger goals. For example, let’s say there is a new videogame set to be released later in the year that you know the child will want to play. You can teach the child to plan by talking to them about the videogame and suggesting that they start to put money aside from their chore earnings to buy it on release day.
Sitting down and calculating how long it would take them to save and how many chores they will need to do to earn the game is a great way of providing a real-life example of saving. It should be made known that if they don’t save the required amount in time, they won’t be able to play the game on release day.
Teaching Balance and Priorities
Something that many adults must deal with is finding balance in their spending. Even if you’re the best saver in the world, circumstances can leave you having to make a choice between purchase A and purchase B. This tends to come down to immediate vs long-term satisfaction — for example, if I buy this pizza, I won’t have enough money to go to the pub with my friends at the weekend.
Of course, when teaching lessons like these to children, it shouldn’t be the case that the parent never pays for anything. However, there are lessons to be learned here even if they are sporadic. For example, you can teach your child about balance and priorities by making them choose between two purchases — “If you buy those new trainers, you won’t have enough money to go to the cinema with your friends”.
This kind of situation teaches the child about a couple of important money management skills:
1. Priorities — Would the child prefer to have new trainers or spend time socialising with their friends?
2. Savings— If the child had saved more money, they might have enough to buy the trainers and still go to the cinema with their friends.
Avoiding Debt
Many adults have issues with debt, but it can quickly spiral out of control if left unchecked. Teaching children about debt might seem difficult because they’re not able to experience what it is like to own a credit card or take out a bank loan.
However, you can teach your child about debt if you act as the creditor. For example, let’s say that the child again wants to buy the latest videogame that costs £50, but they don’t have the savings to pay for it. Rather than flat out refusing to buy it, you can tell the child that you will buy it for them in advance, but that they must make weekly pre-agreed repayments from their chore earnings and must pay interest. In this case, you could agree that the child must pay you £50 plus another £10 interest for the privilege of immediately having access to the videogame.
Although this might seem extreme, it teaches the child that it would have been better to have saved for the game in advance because they’d be buying it for less and would therefore have to do less chores.
Ultimately, teaching a child to save money is often going to come down to the latest product they desire. It can be difficult to discuss things like house deposits and emergency funds with a child but delaying the instant gratification of a product purchase can do wonders when it comes to learning about the value of saving money.
The great thing about this is that it also teaches the value of hard work. Allowances that are only paid once a reasonable amount of work has been completed provide the child with a sense of freedom while learning about value. As a final point, it can be beneficial to provide visual saving cues to the child, particularly if they are not old enough to own a bank account. For example, a see-through savings jar is preferable to an opaque piggy bank because the child can see their pot of savings growing, which can encourage a desire to continue to build the pot.
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