Parenting Win of the Week: Can You Teach Your Kids to Save Money?

My two kids are different in many, many ways, but another difference emerging as they get older is the way they think about money. My oldest is a natural saver. He has put away money, invested money, and very rarely asks to spend on anything that isn’t related to playing a sport. My youngest is all about spending money. Robux, silly toys ... he wants it all.

My husband and I tend to be savers, so this impulse to spend is new and I wanted to know how to balance letting him get some of what he wants from his earned money and teaching him why and how to save. So, I chatted with Jennifer Seitz, Certified Financial Education Instructor (CFEI) and Educational Content Lead at Greenlight, a debit card and banking app focused on raising financially smart kids. She offered some great advice for kids of all ages.

How can we teach kids to start thinking about money at any age?

An allowance is the gold standard in helping kids of all ages learn to manage money and put money principles into practice.

Preschool

Starting in preschool, kids can learn the basics of money — like what money is used for, how we earn it, and how much things cost. Explain that money isn’t unlimited, so there should always be a plan for how it will be used. Talk through any money choices they might understand, such as how you’re choosing the best price at the grocery store or saving up for a fun treat instead of something else.

Elementary School

In elementary school, start setting savings goals and encourage kids to work toward a special purchase. This helps them get into a routine of putting money aside for something they want or need. And it teaches so much more than just achieving a goal — which is a great accomplishment, too. They’ll also learn how to value their money and decide if the item is worth it. As they get older, they’ll understand opportunity cost, and very importantly, delayed gratification — because sometimes, you need to wait for the things you want to buy.

Middle School

By middle school, budgeting is an essential financial skill, along with becoming a smart consumer. They have more independence from their parents, and they’re likely managing more spending and savings. They could be earning more as well. As they get closer to high school, they begin thinking more about their life after graduation. That’s where more real-world topics, like borrowing and banking, come to life. They’re making decisions about college and careers — and preparing for financial independence.

How do we start teaching our kids to be good savers?

Like with any skill, the best way to teach kids is with practice. It doesn’t matter whether kids or teens have $5, $50, or $500. When a child receives money, they ultimately have two choices of what to do with it. They could spend it now or they could save it, to spend in the future. Talk about these choices with kids and explain how saving now leaves money to use on something they really enjoy later.

Kids are still developing the ability to think about the future, so it’s natural for them to focus on right now — the immediate gratification. As parents, we can help them delay that impulse and think longer-term about money. Start with the near future, like a savings goal that your child could reach for a special purchase in several weeks.

Budget practice now helps kids learn lifelong financial skills. In addition to delayed gratification and future thinking, they’ll learn how to prioritize saving, live within their means, and stay disciplined with their money choices.

What if we have a kid who loves to buy stuff? The minute they get a few dollars they want Pokemon or Pop-its or Robux.

Lots of kids love stuff! When your child seems faced with an irresistible purchase, help them think about the other things they could buy with their money instead. To them, their choices might seem limited with the little amount of money they have. But help them imagine the possibilities if they save up their money over time. Explain that "opportunity cost" is what they are giving up by making that purchase now. Help them resist impulse buys by asking them to think about their spending decisions for a longer period. Not just the time it takes to walk through a store aisle.

Allowance brings the perfect opportunity to talk about budgets. Talk about what kids are expected to pay for on their own and how much of the money will go where.

One of the early lessons parents can teach about spending choices is the difference between wants and needs. Both wants and needs have a place in a budget, and the key is in the balance. Kids will get it that true needs, like food and shelter, come first. They’re necessary to live.

As they get older, the distinction between wants and needs can get a little blurrier. Yes, they need shoes. But they may want a pair that costs more than $100. Absolutely, they need lunch. But does it have to be a $10 drive-through meal? These are the ongoing conversations where you can differentiate the essential from the extra for your family.

Greenlight allows parents to automatically allocate their kids’ allowance across categories like spending, saving and giving. There’s also the option to set up spend controls while kids are still learning how to spend within limits — by category or by store.

What is a realistic thought when it comes to how much to save vs. how much to spend?

Savings goals are all very individual, and what’s most important is getting practice in both saving and spending. Money can be enjoyed the most when it’s spent wisely AND when it’s saved, so it can grow over time.

Create savings goals with your kids to help them set money aside for something special, while still spending within their means. It’s all about teaching S.M.A.R.T. money goals — whether they are interested in the latest tech item or have their eyes on their first car. For adults, you often hear the 50/30/20 rule, which is a guideline to spend 50% on needs, 30% on wants and 20% for savings (or paying off debt). For kids who are only managing wants and savings, those numbers could widely vary.

What's an easy way to teach them about investing money and how that works?

With younger kids, you can start by researching a company that they’re already interested in. As an example, Apple and Tesla were two of the top stocks purchased by Greenlight kids and teens in 2021. Talk about if they think it would be a smart investment. First, ask: Do you think this company is going to do well in the future? If the company does well, the value of your stock has a better chance of increasing in the long-term. Second: Is this a fair price? Analysts — such as Morningstar — can help with that. Morningstar gives a stock star rating that compares a stock’s current price to its fair value. The more the stock is trading below its estimated value, the higher its star rating — up to 5 stars.

In elementary school, kids may be ready to learn more about ETFs (Exchange Traded Funds).

ETFs are a great way to diversify your portfolio. In 2021, the Vanguard S&P 500 ETF was one of the top three investments for Greenlight teens. There are a wide variety of ETFs, and you can choose by theme, like green energy; the type of assets they include, such as stocks; or the index that the ETF tracks. The level of risk tells you if the ETF is a match for the amount of risk you’re willing to take, whether that’s Growth (higher chance of bigger ups and downs), Moderate, or Conservative (lower chance of bigger ups and downs).

When is the best age to open a savings account?

The earlier kids get in the habit of setting aside money for savings, the better! Thanks to compounding interest — money earned on money earned — they can put their money to work. Kids can use savings for short term savings goals, like for a new bike. They also can have a "rainy day" fund — money set aside in case a spending surprise comes up. Explain as they get older, it’s recommended to have at least six months of living expenses in savings. It’s called an "emergency" fund, because it should only be used for unexpected situations. Anytime it’s used, it should be replaced.

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