As seen on The Rhode Show
It’s never too early to help your child develop a healthy respect for money. There are a few fundamental concepts to begin with, including the idea of needs vs. wants, the difference between short and long-term goals and an appreciation for sharing and giving back. Once those ideas are understood, there is a simple, 3-step technique to teach your children good financial habits and put them on the path to saving.
Needs vs. Wants
The first step in teaching children to save is explaining the difference between needs (clothes, food) and wants (toys, candy, video games). Encouraging children to plan their purchases ahead of time, and having them wait and think about what they want before rushing out to buy it can foster an early understanding of impulse control and thoughtful spending.
Short Term and Long Term Goals
Explain the importance of setting money aside for short-term and long-term goals. For a young child, short-term savings can include money for immediate expenses like a small toy or candy and long-term savings can include pricier items like a larger toy or spending money for a planned vacation.
Sharing and Giving Back
Raising a do-gooder is as easy as having your children take an active role in giving back. Activities like having your kids sort through their old toys and clothing to donate, volunteering with them at local community centers and teaching them why it is important to give back can go a long way. When it comes to finances, have your children set aside a third of their money to donate to a cause of their choice or buy something nice for a loved one or a friend. If they feel excited and empowered by giving back, sharing will become a natural part of their financial habits.
Teaching to Save
Create three spending categories and encourage your child to split any and all money that they receive, from gifts, the tooth fairy, allowance, etc., into three separate banks or jars labeled SPEND, SHARE and SAVE:
- SPEND - 1/3 for immediate, small spending like candy
- SHARE - 1/3 saved for donating or buying for someone else
- SAVE - 1/3 for a longer-term goal such as a major new toy or spending money for a planned vacation
Once the plan becomes routine, they'll discover just how easy and satisfying it is to save.