Saving money is one of the most important lessons we can learn in life and yet it is one of the least taught subjects to kids. For many adults, we have learned about savings through our own trials and errors. Teaching your child how to save money can help their future-selves. Empower them with our top 10 tips for how to teach kids all about saving money!
Games and role-play are great ways to get younger ones excited about savings and money without even realizing that they’re learning important life lessons. Board games such as Monopoly can help younger ones visualize the importance of keeping cash savings, while role-playing as a shop-keeper and a customer using pretend-money can be fun and educational at the same time.
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Discussing wants vs. needs can help your child prioritize purchases. Explain how food, shelter and clothing fall under basic needs while toys and games are extras that fall into the “wants” category. You could use your own budget, as an example, to show you hold off on your wants in order to take care of the family. Kids learn a lot by watching us, too - creating your own savings plan and avoiding impulse buys can be great examples for kids to see.
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Rather than a set allowance, allow your child to earn a commission in exchange for chores to grow their value for hard work. Once kids earn their own money, they are able to practice using it and saving it. Teens can work part-time or summer jobs. Kids may have more incentive to save it as they begin to understand the time invested into earning their money. Should they choose to spend it, it also teaches them how quickly money can disappear from their wallets or piggy banks.
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For kids, savings goals work better when there is a little incentive involved – like working towards a favorite video game or a new toy. Sneak in a little math practice while working out their savings rate. For example, if they’re earning HK$20 a week and trying to buy a HK$100 toy, help them see how setting aside a larger percentage of their earnings every week can help them achieve their goal faster.
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Once their savings plan are in place, your tots or teens will need somewhere to store all those dollars and coins! For younger ones, clear jars work better than piggy banks so that they can visually see how their money is growing, while still serving up the joy of a piggy bank as they listen to amusing clinking sounds when dropping in coins. Older ones may be ready to open their own checking or savings account with some parental guidance. With an account in place, they gain a sense of responsibility and can log in, anytime, to watch how their savings grow over time.
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Budgets serve as a way to see where your money is going and can come in handy for the youngest to the oldest of kids. Younger ones can start off with a 3-jar system in which jars are labelled “Give”, “Save”, and “Spend”. Whenever they earn money, they can split it in between their 3 jars to help them see how it’s being divided while learning the importance of giving to their favorite charities, too. Older kids can make a list of where their money is being spent daily and add it up at the end of the week or use an app to keep track of expenditures. An eye-opening experience – they can then make tweaks depending on what they’d like to save up for!
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Introduce financial terms, such as loans, debt, and interest, to kids as young as 8 and put them into practice at home for a taste of real-life. If your child is saving up for a bigger-ticket item, like how grown-ups do for homes or cars, you could provide them with a loan – and remind them they’ll have to pay you back in-full with a small interest. Explaining how debt and interest work, and then putting them into practice can serve as a practical way for them to understand why savings always help. Explaining compound interest will show them how they can grow their savings faster.
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Saving builds wealth to buy more things in the future – the opportunity cost is not having as many things right now. Though a big word – it’s a concept that most kids will understand from their own experiences – they may just need a little reminder when making purchases. Giving them concrete examples may help drive how opportunity costs work. For example, if they want to buy a new toy, remind them that they may have to give up getting their favorite pair of shoes.
Similar to how companies offer a matching contribution to their employees’ retirement plan, you could offer comparable incentives to kids who may not be as motivated to save up. For example, if your child is saving up for something big like a kindle, you could give them a HK$100 bonus once they reach their half-way point. Or you could match a percentage of when they have reached a certain amount of money.
Although our natural instincts may be to sweep in and protect our child from any falls, it can sometimes be more beneficial to them to learn from costly errors. Regrets made from a purchase may help them understand the benefits of saving in the future and what not to do with their cash. Experience can be the best teacher so letting them make mistakes while they’re still kids can help them create a more successful future.