Saving has a rather ironic purpose: Your kids do it so that, at some point, they can spend. This activity has some big benefits, not only for your children’s money-education, but also for their personal and social awareness.
1) To confirm that money has a value
On the most basic level, the value of money comes from the ability to trade it for something else. Your kids, for instance, can give it to a cashier in exchange for, say, some jeans, a comic book, or a snack. In this sense, it is connected directly to the old system of bartering, which allowed people to swap goods they acknowledged as having a relative value—people adopted coins and bills simply because they standardized the currency used, and because they were more convenient to carry. A reasonable amount of responsible spending lets your kids understand exactly what the current trading value of money is, which helps them plan financially and grasp why tracking the money they have is worth taking seriously.
2) To be part of the economic system
When your kids spend money, they support the economy, regardless of what good or service they purchase. This plays a big part in keeping communities stable. As you let your kids buy stuff, you have a great opportunity to discuss this relationship and make the connection between their spending and social responsibility. Be sure they understand that they can have an effect on communities around the world based on direct and indirect global ties, particularly as the Internet allows them to work with vendors from virtually any geographic region.
3) To carry a goal through to completion
When kids are younger, they’re still developing their ability to think abstractly and rationally. That ability comes as their brains grow and they go through new experiences. Impulse control, therefore, is a huge issue, with kids usually wanting to spend in the moment. Although a little splurge now and then is fine, it’s important to teach your kids to be more future oriented with their cash so they get used to planning and budgeting. Have them set goals for specific things they want to buy and then help them track their savings progress. When they have enough money to get what they set out to buy, make a big deal out of the fact they followed through—resisting temptation is tough!
4) To get used to having regular expenditures
Much of the time, mommy and daddy make what kids need appear, covering financial responsibilities. As a result, a lot of kids simply assume that their parents will keep picking up the tab for whatever they need or want, which makes it very difficult for them to understand why they need to practice some restraint and frugality with money. If they have to spend a little of what they have, they get a better sense of how to prioritize goods and services, and they have a more realistic concept about getting stuff for free.
5) To set themselves up for financial security later
Talk to most financial gurus these days and they’ll tell you that, given typical incomes, working just isn’t enough if you want to be rich (or at least, inarguably financially secure). You have to let your money work for you through investments, too. Options like buying stocks or bonds or setting money aside in a government-backed college plan might decrease the amount of cash your kids have immediately available, but in the long term, they can provide a good return that lets your kids do more. If your kids choose to spend their money this way, just make sure that they’ve at least outlined some broad goals. They might not know where they want to go to college, for example, but they can at least acknowledge that they want to enroll and that the money they’ll gain through investing is meant for that. Kids are more likely to stick with a saving or investment plan if they have a clear objective for what to do with the cash.
Money is not meant to be hoarded. It’s meant to be spent, albeit with good planning. As you get your kids on a solid savings track, don’t forget to let them see this second side of the financial coin.