Teaching Kids to Save Money

Getting Started

Before you can begin to teach your child about the important of budgeting, he will need to have his own income. For most children, this comes in the form of an allowance or a part-time job.

Allowances

Giving your child an allowance is a great way to teach him about the importance of sound money management. Choosing the right amount of money for your child’s allowance can often be a difficult task, however. One general rule of thumb is to give $1 for each year of your child’s age, so a 10 year old child would receive $10 per week. But, parents should feel free to set an allowance amount that takes into account their own financial circumstances.

The question of linking allowance money to chores is a topic of debate among many parents. While some people believe kids should have to earn the money they receive, others operate under the assumption that children should simply accept their chores as a natural part of the responsibility that comes with being a member of the family.

Part-Time Jobs

Older children who work part time to earn their own spending money gain a feeling of independence that’s hard to duplicate with an allowance. Fast food establishments and retail stores are often willing to hire teens age 16 and up. If your child is having difficulty finding a traditional part-time job, however, this does not mean earning his own money is out of the question. Lawn mowing, snow shoveling, babysitting, and dog walking can be great ways for kids to earn their own spending money. Your child may even wish to start his own business, such as selling handmade crafts or helping younger children with their algebra homework.

Tips for Teaching Kids to Save Money

Once your child has his own money to manage, consider the following tips to teach him how to spend it wisely:

• Show your child how your family saves money. You don’t have to reveal the intimate details of your finances, but even young children will appreciate an explanation of how you and your spouse plan to save for the family’s annual summer vacation. If you are working towards saving money for your child’s college education, provide an age-appropriate explanation of this as well.
• Explain that credit cards don’t offer “free” money. If your child frequently sees you using a credit card to pay for purchases, he may not understand that you must repay this money with interest. To further illustrate the importance of not buying items you can’t afford, consider charging your child a small amount of “interest” whenever he must borrow money from you as the result of poor financial decisions.
• Use envelopes or a series of piggy banks as tools for teaching kids to save money. For example, many parents use three banks to distribute a young child’s allowance into 50 precent for spending, 30 percent for saving, and 20 percent for donating to charitable causes, such as church activities or a favorite community organization.
• Have your child create a budget with categories such as new toys, entertainment, or birthday gifts for friends and family. At the end of each month, sit down and revise the budget as necessary to help your child gain a better understanding of how he is spending his money.
• Don’t be afraid to let your child make mistakes. If your child has been saving for a new video game that will be released at the end of March and he wants to waste his allowance on candy at the beginning of February, let him learn that his actions will have consequences.

Additional Information

To learn more about teaching kids to save money, check out the following helpful Web sites:

• Money Instructor
• Kids’ Money
• Young Investor

You may also be interested in these personal finance books:

• Raising Money Smart Kids: What They Need to Know about Money and How to Tell Them by Janet Bodnar
• Kids and Money: Giving Them the Savvy to Succeed Financially by Jayne A. Pearl
• The Everything Kids' Money Book: From Saving to Spending to Investing - Learn All About Money! by Diane Mayr