Top 5 Tools for Teaching Kids to Save Early By Michelle Edwards, CPA Debt is rising and savings are dropping. The statistics are sad and it's a scary truth. Kids are not learning how to save and spend their money wisely. Kids watch parents spending on plastic every day. Kids watch money falling out of ATM's. Kids are learning that if you have plastic, you have money. The problem is that this is not how money works, plastic does not mean you have money. Adults work hard to earn money, we have bills to pay, and just because we have plastic does not mean we have money. Personal finances are usually not taught in most schools, so it's up to the parents to teach their kids about money. Most parents struggle with the topic of money. Some parents might view family finances as a personal matter whereas others may struggle with money issues and don't understand how to manage their own money. If you're looking for some help teaching your kids about money, here are 5 tools to teaching kids how to save at a young age. You're Never Too Young to Save Teaching kids about money and the importance of saving can start as young as a toddler. Get your toddler a piggy bank, or simply use a jar. They will get so excited to drop coins into their piggy bank. After a few weeks, open the piggy bank and let them see how much money 28
they've saved. This is a great way for little kids to watch their savings grow. As your toddler grows up and heads to school, take them to the bank and help them set up a savings account. This allows you to teach the concept of interest (the bank pays you to store your money there) and gets your children started using and trusting banks. Check with your local bank, some banks offer savings accounts especially designed with kids in mind. Savings accounts are are the perfect place to save allowances, birthday money, and tooth fairy money.
teach your kids how to live within their means and not to live paycheck to paycheck. Yes, it might take longer to save for the special item but this is a valuable lesson to learn and will benefit your children for years to come! Time Value of Money Kids have the value of time on their side. They can invest a little bit of money today and with the awesomeness of compounding interest, this little bit of money will turn into millions when they are old. Learn this formula and teach it to your kids. It's worth more than you realize.
Spending within Your Means As your child continues to grow, they will discover that it's fun to buy things with their money. They will see something they can't live without and want to spend their savings. Instead of allowing your children to spend their entire savings on one purchase, teach them how to split up their money. Have a long term savings account (only to be used as savings and not for spending), a short term savings (an emergency fund or saving for their bigger purchases), and their daily spending portion. Lori Mackey created the 10/10/10/70 concept and it's an interesting and structured way to help your kids get started. The 10/10/10/70 concept states that for every dollar your child earns, put 10% into a long term savings plans that saves for financial security, put another 10% into your emergency savings account, donate 10% to the charity of your child's choice, and then your child can spend the remaining 70%. This model will
Time + Money + Compounding= Wealth Talk to your kids about starting a Roth IRA. My dad tried and tried to convince me this was a good idea when I was in high school. Retirement seemed way too far away so I was not to excited to invest my summer wages to benefit me when I was 65. However, looking back on it, I wish I had followed my dad's advice. I would be so much closer to my retirement goals! Dangers of Credit Money does not grow on trees or fall from the sky. Money does not drop from ATM machines. Money does not always come from mom & dad. Money is hard earned and we work hard for it. Unfortunately, kids today usually only see their parents buying with plastic. So they quickly associate plastic means money, which is not the case. Just because you have a credit card does not mean you have money. It is important to teach your kids about credit cards.