If you haven’t quite gotten around to talking to your kid about the importance of stashing away some cash for a rainy day, don’t fret—you’re not alone. In fact, a new survey from T. Rowe Price found that nearly a third of parents avoid talking about their family’s current financial situation with their kids, and only half of parents admitted to regularly setting aside money of their own to save or invest.
Teaching your child the importance of saving money for the future doesn’t have to be hard or boring. In fact, starting the habit at a young age is the best way to ensure that your child grows up with the skills necessary to keep saving each and every month.
To help you get started, we spoke with Neale Godfrey. Godfrey has written 26 books about finance for both adults and children, and her book, “Money Doesn’t Grow on Trees; A Parent’s Guide to Raising Financially Responsible Children,” was a New York Times No. 1 bestseller.
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These are Godfrey’s four steps to start getting your kid started, and interested in, saving:
1. Know when to start teaching. “I usually tell parents they can start teaching their kids about the value of saving at around the time the kids start saying they ‘want’ things, which is usually at about 3 years old,” says Godfrey. The other clue that your kid is ready to learn the value of a dollar is when it’s clear she understands the concept that money can buy things. “This means instead of asking for a toy, your kid might start asking for the money to buy the toy,” says Godfrey. “When that happens, it means your child understands that money is a medium of exchange, and you can start introducing her to the concept of savings.”
2. Set up an allowance system. The first step on the road to learning about money is an allowance. “This helps teach kids that they have to earn the money they’re going to spend and save—it’s not just handed to them,” says Godfrey. There is no end to the advice out there about allowances, but Godfrey suggests a system of putting household chores into two categories: “citizen of the house chores” (jobs your child is responsible for just because she is an active member of the family, like brushing her teeth, going to bed on time and cleaning up her toys) and “work-for-pay chores” (the above-and-beyond tasks you set your child up with so that she can “earn” her allowance money, like setting the table, helping you fold the laundry or sorting the recycling). Set up your system so that your child knows which chores she’s responsible for that will earn her some allowance money each week, and keep track of when those chores are accomplished, either on a refrigerator chore chart or, if your child is a bit older, with an online system like the one you can find here.
3. Introduce the concept of saving for different things. Young kids need to physically see the money they are saving for different areas, says Godfrey, so start your young child off with four clear plastic jars or piggy banks. The first jar can be labeled “charity,” and approximately 10 percent of your kid’s allowance should go in here. “It’s just as important to introduce the idea of donating to charity at a young age as it is to introduce the idea of savings,” said Godfrey. The second jar can be her “quick cash” jar, and 30 percent can go into that jar as her spending money. This way the next time you’re at the grocery store and your child wants that $3 Silly Putty, you can have her pay for it out of her own “quick cash” savings. The third jar can be labeled “medium-term savings”, and your kid can stick 30 percent of her allowance into that one, as well. This jar should be used to help your child learn about saving up for something larger in the near future, like a bike or an extra computer game. The fourth and final jar is for “long-term savings.” Explain to your child that some goals take much longer to save for, like paying for college or getting a pet. Let her save 30 percent of her allowance in the long-term savings jar each time she gets her allowance and, if she’s old enough, you can take it to the bank together to deposit it at the end of the month.
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4. Show her how the bank works. Before you can take your kid to the bank to deposit her savings, she’ll need an account. Most banking is done online these days, but young kids won’t understand the concept of dealing with money online—they need to visually see where the money goes. “At about 5 years old, you can take your child to the bank,” says Godfrey. “And ask someone there to show your child the big safe, so she gets the idea that even though she’s handing her money over to someone else, it’s still being taken very good care of.” Then open a savings account together. A savings account is a better idea than a checking account because her money will grow over time with interest. “Kids at 5 won’t understand the concept of long-term savings, investing or interest, but the idea behind the savings account is to start the habit of saving, so that as your child grows, all of this is just second nature.”
Don’t forget—it’s never too late to start talking to your child about the importance of saving. Even if your kid is older, if you haven’t had a conversation yet about the different things he should be doing with his money, do it today. Introducing your child to the importance of saving and keeping the conversation about money open is one of the most important things you can do to help ensure his future financial success.
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