The discipline required to save a portion of your money rather than to spend it all is like a muscle that needs to be exercised. Without exercise, it becomes lazy, loses muscle tone and even- tually doesn’t work at all. Very soon, your children will become adults that can’t control their spending, are caught in a web of debt, and have no idea of how to invest. They will also not be able to enjoy the wonderful beneﬁt of long-term saving, namely compound interest.
Children should really understand the beneﬁts of saving before they’ll make a point of it. As soon as they see their money grow, they’ll become enthusiastic and will want to save more. However, don’t be too strict, as money in the bank is a relatively abstract concept, especially to younger children. Allow them to draw a small amount of money from time to time to buy something they really want as a reward for all that conscientious saving.
To teach your children the value of saving wisely, use children’s natural liking for collecting things. Let them collect money. As soon as they’ve collected a certain number of coins (say, $50 worth), let them deposit half into a savings account and keep the other half in a safe place at home. Then start collecting coins again.
As your child gets older, the amount of money you regularly give her to spend should be increased, as well as the responsibil- ity for the use of that money. And as she realises that she’d like something bigger and more expensive than her weekly candy cache, the idea of saving can be introduced.
Saving encourages setting goals and working towards them, whether it be a new bike or a long-term goal such as a trip overseas. If your child has a savings plan in place, she can bump it up when she gets extra money, such as for a birthday present. Ideally, think about opening a savings account for your child around her eighth or ninth birthday.
Before then, most children don’t understand what it means to put money in the bank. In fact, children may be reluctant to transfer their piggy-bank savings to a savings account where, in their minds, it will never be seen again. Opening a savings account teaches your child about earning interest and how to safely care for money.
Before transferring the contents of the piggy bank to a bank account, make sure the bank’s minimum deposit requirements and fee structure won’t swallow up your child’s hard-earned cash. Many banks offer special savings programmes for children. When it comes to investing, youngsters may have a harder time understanding the principles.
Children usually don’t show an interest before about age 12. It’s important to let her learn how to deposit her own money and to read the bank book or statement to see how the money is growing. A good motivator for savings of any kind is for you to agree to match the amount your child saves.