One of the biggest problems most parents face when they’re trying to teach their kids about money is getting them to save.
Getting children to start and maintain a rainy day fund is especially tough.
Want Vs. Need
Most parents who want to teach their kids about saving generally start by having them set a goal. The key here is that the goals usually center around something that the child wants. For instance, your child might save his allowance to buy a new game. Saving for a rainy day fund is different because the focus is on saving for something that is necessary. Instead of just fulfilling a desire and making your child feel good, the money saved prevents a potential problem. For instance, if your child has a used car he drives, he might put money into a rainy day fund anticipating that he’ll need to make some repairs.
Kids have trouble saving for a rainy day in part because they still are so emotion-based in their purchase decisions, still gaining the experience and ability to rationalize that can slow down spending. Their ability to distinguish between what they want and what they need is lacking, and living in the moment, they often fail to see the issues that could crop up in the future. Even when they do look ahead and acknowledge what could go wrong, they frequently disassociate from the risk, believing that the potential problem is too far ahead to worry about, or that, unlike their friends or family members, they are too protected somehow for the problem to manifest.
Teaching Your Kids to Save
Understanding that saving for a rainy day requires kids to be forward focused and logically prioritize, these tips can help you get your children putting money aside:
- Have them make a needs list.
Kids often don’t realize just how many things they need, typically because parents are usually paying for most of their essentials. Sit with your child and have him write out the things he can’t be without, and then talk about why each item is a must-have. If he doesn’t already know the cost of the items on the list, have him do some research online or in a store with you. Then have him do some calculating to figure out how long it would take him to pay for each item by saving x dollars a week or month. You can compare his list to your own if desired—this will show him that what people consider essential can change over time. This will help your child grasp just how big his savings really should be and the time realistically involved in reaching the savings goal.
- Ask “what if.”
Many kids don’t save for a rainy day even if they can identify the true needs they have because they assume that their parents, a friend, another relative or even a credit card company will be their financial safety net. By asking your child questions like “What if I lost my job and you didn’t get your allowance?”, you not only get him thinking about the factors influencing his income, but also about how a rainy day fund offers stability and greater financial independence when those factors flare.
- Give them a bank or jar.
Kids occasionally think that, if they’re going to get anywhere with a rainy day fund, they have to have a lot of money at a time to put away. This isn’t necessarily true—what really matters is just being consistent with the deposits, which will add up over time even if they are small. Give your child a separate jar or bank to use for their fund and encourage them to put their “leftover” loose bills and change in it at the end of every day. They likely will be surprised at how much they accumulate in just a month. If your children are younger, you can make decorating the bank or jar with them a special project.
Having kids save for a rainy day is a little more sophisticated than having them save for whatever they want, requiring more critical thinking, prioritization and anticipatory skills. Simple techniques like listing and discussing their needs, getting them to answer “what if” questions related to money and encouraging them to toss even a little change into their fund can make the task easier.