Helping Children to Save Money

learning to save moneyMost parents would like to see their children grow up to have good money habits, which include regularly saving money. But how can we teach them, when most of us, as parents, struggle with the same issue? Some children seem born with the desire to save, and some want to spend every cent as soon as they get it. It is this latter group who needs our guidance if they are to learn how to save money.

You can help your children to develop this skill, and if learned young and practiced during the formative years, it can become a good habit that will benefit them throughout their lives. It will also benefit you as a parent when your children save for the things they want,  rather than ask you for the money.

Parents can start by playing games that include earning and saving points or rewards, and then redeeming them. Board games such as Monopoly Junior and apps that teach about earning and spending are ways for children to learn that money is limited and wants are limitless. As soon as your children start getting money for gifts and/or allowances, real savings should be encouraged. When you think your children are ready, you can get them a piggy bank, or a bank account with a passbook to watch their savings grow.

At what age should you start encouraging your children to save money? An article from Forbes Personal Finance reports that children as young as three can grasp financial concepts like saving and spending, and that kids’ money habits are formed by age 7.

What will your children be saving for? If they have something specific in mind and know how much it will cost, you can make a chart together, showing what’s already saved and the amount still needed.

Will you let your children spend their savings on whatever they want, even if it is something you think they will regret buying? This could be a learning opportunity, and these early mistakes might save them from more costly mistakes later in life.

How long should it take to save for what they want? The time frame should be short to begin with, and then can be lengthened as the children get older and their ability to delay gratification increases.

Once your children have reached a few of their short-term goals, it might be time to introduce long-term savings for a bigger purchase. There is no reason they cannot save for both long- and short-term at the same time.

If your children are saving to help pay for a bigger purchase, such as a more expensive bicycle, you may choose to match their savings amount, or contribute a portion when the goal is reached.

How much should your children save? A rule of thumb for adults is to save at least 10%. We should encourage our children to save at least that amount and they can save more if they want to reach their goal faster.

Should the money ever be taken out before the savings goal is reached? Wants, needs, and goals can change; is it prudent to stick to a goal that may not be relevant any longer? Depending on their age, you might want to discuss this with your children and resolve it before the situation arises. However, to build good savings habits, the general feeling is that the money should be left alone until the goal has been reached.

Let your children see you saving so they learn that saving is something you do as well.  For example, talk about how much you need to save each month for a family vacation, and discuss deferring or forgoing a purchase because you are saving instead. Young children want to be like their parents, so they will be further inspired to save.

As often happens when helping their children learn, parents might find they improve their own saving skills as well!

Further information and ideas can be found in this article on

Making Sense of Allowances

Most parents choose to give their children an allowance. Two good reasons to give an allowance are:

1.  to teach children to manage their money, and

2.  to curb their constant requests for money.

Here are some things to consider before handing over those first dollars to an eager child.

When to Start:  Perhaps a good time to start is when your child realizes that money can buy the things he wants. That could be as early as 3 years old for some children. The sooner you start, the sooner the learning begins.

How Much:  The amount of the allowance will depend on how much you can afford to give, and the age of the child. Most parents don’t want their child to have significantly more or less money than other children in the neighbourhood or school. The allowance should increase as the child gets older, and it would depend on what your child is expected to buy with it.

Weekly or Monthly:  Most parents give the allowance weekly, as it is too hard for young children to manage their money over an entire month. Pick the day when the allowance is paid and try to stick to it. If your child asks for an advance, and you agree, it is a great opportunity to talk about loans (use of other people’s money), what they cost, how they are paid back, and what the penalty is for late payment. Be prepared for your children to ask for interest if you are late with payment of their allowance; it shows they are learning how debt works!

Connection to Chores/Grades:  Experts are divided on the issue of the connection of  allowances to weekly chores or good grades. Some feel that children should share the family workload just as they share in the resources and advantages of being in the family.  The logic is that if parents train their children to share and work together, it builds a giving, volunteer spirit, and if the children do their best to get good grades, the reward will be pride in their accomplishment.

Others argue that to link chores or grades to money will prepare children for the adult world of work for pay. It teaches responsibility and consequences. Some children may respond better to one method more than the other. Some parents use a combination where the allowance is independent of the chores but the children can earn more money if they do extra jobs.

The age and maturity of the child is also a factor. Small children need immediacy, and will not make the connection between putting away their toys on Monday and getting an allowance the following Saturday.

Saving and Giving:  Encourage (or insist) your children save a little each week. It will help them learn how their savings grow over time. They can save for short-term goals such as family birthday gifts, as well as long-term goals which might take a year or more.

There are opportunities to learn simple math such as how to divide allowances into parts – 1/4 for saving, 1/10 for charity, etc. Help your child calculate how many weeks of saving it will take before he has enough to buy the item he wants.

Sharing and helping makes everyone feel good. Giving a child an opportunity to see how his money is helping to make someone’s life better will make him feel wonderfully empowered. If you can, take him to the place where his money is being used, and show him the people it is helping, such as a centre where homeless people can get a meal.

Kids can learn decision making, patience and goal setting, and sometimes they learn by making mistakes with their money. If they learn the lesson with a small amount, they may not make the same mistake later in life when the stakes are higher.

Here is a link to further discussion on allowances.