Teaching your child the value of savings can be one of the single greatest things you can ever do for your child (right after loving them unconditionally). Unfortunately, the reality is that money is probably talked about even less than that other biggie, sex. Many children go off to live on their own without even knowing how to balance a checkbook. So how can you get your child off to a good financial start in life? Teach them the ABCs of savings and set a good example by following them yourself.
A – Always pay yourself first.
B – Be enthusiastic. Money is fun!
C – Create wealth and stability. Don’t be a slave to things.
Always paying yourself first ensures that saving is a priority in your life. YOU are worth it, YOU are more important than any other bill out there, and YOU have a plan and are on track to implementing it. Sit down with your child and set up an online savings account for them (be sure to choose an FDIC insured account). Show them your account as well, and explain that you have 10% go straight to it every pay period.
Be excited about this, because it IS exciting. (And yes, I did say to show them your account — actions speak louder than words, and money is nothing to hide.) Dream together. What are your savings goals? Where do you want to be in 10 years? If you have a dollar today and you spend it, what could you buy? (A pack of gum, maybe?) If you choose to save your dollar a day until you have $10, what then? What if you saved a dollar a day for 10 years? (Would you rather have 3000 packs of gum, or say a car?) And then there’s the value of compound interest…
Create wealth and stability by managing your finances wisely. A child is never too young to learn how to choose wisely. If they are very young, let them watch you pay the bills and “help” by paying to pretend bills. As they get older, let them fill out a few of the bills each month and enter them into an electronic or paper check register. Once they reach 13, get them a checking account of their own to go along with their savings account. Be sure to tell them your financial goals — so that they know you are choosing to forego the junk food in favor of building a pool in the backyard. When they ask to buy things at the store and you don’t want to spend the money, be honest and say “no, I don’t want to buy that” instead of “oh we don’t have the money”.
Modeling good choices will go a long way. When you pay with a debit card, explain that the money comes directly out of your checking account. Explain how the money gets into your checking account in the first place. Talk about whether the amount of work you do is worth what you choose to buy. (For example, if there’s something you want to buy, ask yourself out loud in the hearing of your child “hm, is it worth 5 hours of work at my job to have this item?” Answer yourself out loud as well, and follow that up with the course of action you’ve decided on.)
If you pay with a credit card, explain WHY you are choosing to pay that way. (Because you want good credit history because you want to earn mileage points because you want the extra credit protection.) Point out that you always pay your entire bill each month. Talk about why you make the choices you do. If you feel bad about the choices you have made in the past, talk about those too and the effects they have had on you. And start making better ones now. You’ll be a good example of the power of choice and money management.