Teaching your child to save has never been more important as are growing up where households are more likely to be eating into savings than building them. At the moment in the UK, the savings ratio (the amount we have left to save from our disposable income) is pretty low. Saving can be immensely rewarding. It’s certainly a skill for life. So, how can you encourage your children to save money?
Children love prizes
Savings are the ultimate prize, and kids love prizes. Watching a stash of money grow is encouraging and motivational in itself. However, the concept of saving is about longer-term rewards – something that is harder to grasp the younger you are. That doesn’t mean you should shy away from encouraging. Instead, you need to also add in some interim rewards. For example, if your child saves the same amount of their pocket money for four weeks, you could buy them a pack of their favourite trading cards.
Make it visual
Along the same lines of instant gratification, children can be encouraged to save by making it visual. Money in a bank account is a complex abstract concept for children. Therefore, if they are young it can be helpful to save coins in a jar they can see fill up. For slightly older children they can have a thermometer ‘goal’ style reward chart which they can see rising. For older children they can use a spreadsheet, or app such as Rooster, to keep an eye on things.
Get the percentages right
It can be good to use childhood saving as a lesson in saving for different goals. For example, they may have a short-term goal to be able to buy a new sticker book, a medium-term goal to buy a teddy they’ve had their eye on, and a longer-term goal of saving for the latest games console. By dividing up their savings accordingly, they can see how they are making progress towards each of the goals.
Set the example
As with every other area of parenting, you’ll find children are more successful at learning money saving habits if they see and hear you doing the same. Therefore, as a family, discuss how you save for the bigger things such as holidays. Additionally, you can talk about how you save for their future too, as a way of demonstrating your commitment to their saving. By choosing one of our children’s savings products, such as Junior ISA, Junior Money Maker, or the Young Saver Plan, you can show children how savings grow, and explain annual statements to them.
Match their savings
Children’s pocket money or allowance can be limited. Therefore, their savings can be limited too. This can be demoralising if they are saving hard and seemingly getting a minimal reward. If you can, a great strategy is to match their savings. Therefore if they choose to save £50 of their birthday money, you’ll boost it to £100. In this way, a child can much more easily save towards bigger items, such as a computer, in a more realistic timeframe.
Open a child’s savings account
Many high street banks offer children’s savings accounts for secondary school age children. While they won’t get the best interest rates, it can be a good way of gradually learning the concept of account saving. You can then introduce the concepts of interest, and importantly compound interest, with direct consequences.
Let them get it wrong
It’s hard when you know better, but remember they are just learning! While they are begging for that toy in the gift shop you can gently explain it will make their overall saving’s goal take longer, but if they persist, let them buy it. Through experience, they will learn how it would have been better to wait. It’s an important lesson, and one best learnt young.
Teaching children to save is essential for laying the foundations for long-term financial responsibility. It can be fun in the process. Take small steps and make it age-appropriate for your child and you’ll have a saver before they are in control of their earnings.