Teach Children The Value Of Saving

38662892_sIn our college class that Susan and I teach throughout the year to local retirees, we talk about the income needed in retirement to maintain a retiree’s current lifestyle. A point we like to stress is that a retirement lifestyle lends itself to a lot of free time, and the way we choose to fill our free time often costs money. Whether it’s traveling, golfing, going out to eat, going to the movies, free time can get expensive.
Around this time each year, as our kids start their summer break, they also encounter that all too expensive free time. I always know with my daughter, Phoebe, when she comes downstairs with an extra sweet smile, that she’s about to try to smooth talk a $10 bill from my wallet. Any parent with a persuasive kid knows the look that I’m talking about.
If your kids do the same thing, before you open your wallet, I want you to think about whether you are helping your child by handing over that $10 bill. I certainly understand that every family situation is different but I do believe that everyone can benefit from teaching our kids the importance of living within their means and trying to save. Sometimes, a parent just needs to say, no. But, of course, there are also times when we want to give our kids whatever we can. Hey, who doesn’t want to have fun in the summer, right? So long as I am imparting some lessons to my kids along the way, I am happy to buy them an occasional ice cream cone.
Any conversation about children and money would be remiss without discussing the topic of allowances. When I was growing up, we had a list of chores, and if we completed those chores, we got a reward. That reward was not an allowance; it was the privilege of a roof over our heads and food on our dinner plates. It is hard for me to swallow the idea of paying an allowance to children for doing what’s expected of them, but a recent study from T. Rowe Price found that children ages 8 to 14 are more likely to be smart about managing personal finances when they receive an allowance, as opposed to children who do not receive one. It is important to note that this is not because kids feel strongly that they do not want to part with their “hard-earned” cash; it is because agreeing on an allowance starts the conversations that parents should be having with their kids. The communication about money is what is valuable; allowances simply give the platform for that communication.
A recent paper published in the Journal of Consumer Affairs confirmed that money habits are formed early in life. The paper reported that 15 is the age when the mindset of young people switches, in terms of their financial independence. They become more focused on saving money, rather than trying to finagle it from their parents (My oldest, Maeve, is 15, so that just leaves me with twins to battle). This transition time is extremely important, considering that the study found that saving habits at age 16 are very closely associated with savings habits at age 34, and those habits are shaped dominantly by—you guessed it—parents. This puts the pressure on us, as parents, to not only make sure we are encouraging and educating our children how to responsibly save, but to model those behaviors for them.
So how do we go about having those conversations? Where do we start?
Start with educating yourself. There are endless resources on the World Wide Web, including archived articles of Cutter Family Finance. There are also a lot of local workshops that you can attend to make sure you have your facts and figures straight before you become the master of wealth education for your kids.
When you do start to have those conversations, make sure you frame them around things they understand and care about. One of the biggest things you want to impart to them is the importance of saving money, but talking to a 9-year-old about saving for retirement won’t likely have the effect you are looking for. Talking to them about saving for a new bike next summer though? That might yield a better result.
Help your children set up savings accounts, and give them monthly updates about the progress. Show them that they are getting closer to their goals. Get them excited about saving, and that excitement will carry on for decades into the future.
But, no matter what you say, the most important thing you can do is practice what you preach. Children absorb the lifestyle choices of their parents. If children never see their parents discussing finances, budgets, or investments, they will assume those things are not important. Children whose parents are cognizant of these issues and discuss these things, alternatively, will have a higher appreciation for the importance of financial management.
So, as I try to keep my money out of the hands of my girls this summer, I’m going to make more of effort to keep it in their minds.
We need to teach our children to be vigilant and to stay alert, because they deserve more.