Wednesday, 13 July 2011

Your Kids, Their Money: How to teach your kids to save

Talking to your children about money can be as difficult as talking to them about sex. But both conversations are equally important. As a financial journalist, I think the “money talk” is more important than the “sex talk”. Money, finance and economics are not taught in elementary school. Young people are just as confused about money as they are about sex. Often they wonder, how do adults make money? Why do some things cost more? How much is a million dollars? What are bills? Just like sex, these question needs to be answered honestly and appropriately.  Here are some tips to de-mystify the subject of money with your kids. I would recommend starting this when they are 12 years old.  Click "read more" for all my tips.

Open up a bank account in your child’s name 
A savings account is the most fundamental way to teach your child about saving and spending money. Take your child with you to open a savings account; give them a bankcard so they understand that this is their money. When they deposit money make sure they see how their account is growing.  Make sure they understand the fundamentals of what a bank account is and the security that comes from having one. 

Don’t give them an allowance 
An allowance does not teach kids the value of money, instead give them a list of chores that they get paid for. Cleaning their room, washing dishes or mowing the lawn. Make sure the chores are appropriate for your child’s age. If you are paying your child $15 a week, create three chores that they must complete that pay them $5 each.  This will give them a good work ethic as well.

Reward children for good grades
Just as an employee would be rewarded with extra bonus or promotion for a job well done, children should be rewarded for getting good marks in school or winning an award. This helps teach young people the value of going “above and beyond” the call of duty and sets them up for later in life. 
Piggy Banks are a big NO NO! 
Do not give your kids a piggy bank for saving. Piggy banks teach kids that savings money is a mystery and putting all your money in one place is the best way to save. Piggy Banks are fine for fun and to get kids putting change away, but it does not teach them how to save. They can’t check their balance, they have no way to get at the money unless they break the piggy and the money is not safe.

Help them spend money
Once your child has saved up enough money to buy an item they want. With your permission they should be able to purchase it. Help your child by finding the best price on the item they desire, shop around at a few stores with your child to help them understand they’re in control of their money and they can be a savvy consumer.
Teach them the value of donating
Giving away money is the best way for children to understand the value of money. If you child has a part time job and is making some consistent income approach them about the idea of donating some of their earnings. Even donating $10 a month will help your child understand how valuable a small amount of money can be to someone who has none. It helps them realize the value of discretionary items as well.

In Summary, money should be seen as a conduit to acquiring goods and services. It should never be linked to status or self worth.  Often kids don’t understand how hard a parent has to work to spend $300 on a toy for them. These tips will help children understand how difficult it is to make money, how easy it is to spend it and how a little bit of money spent the right way can change someone’s life.

Happy Saving!
Rubina Ahmed-Haq

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