Teaching your child to save for a rainy day is one of the most important skills a parent can pass along. Educating kids on why and how to save for unexpected expenses sets them up to weather the storm in any economic environment — and helps them learn how to effectively manage their money later on.
Here are tips on how to teach your kids about the importance of saving.
Things Happen; Be Prepared
Kids understand that often life doesn’t go quite as planned. Parents can put this reality into financial context by explaining that unexpected expenses often pop up out the blue. Some of these unpredictable scenarios include:
- Replacing a faulty appliance
- A pet healthcare emergency
- Repairing a vehicle
- Paying for summer camp
- Upgrading your laptop/tablet/phone
- Travel for a wedding or funeral
- A new outfit for an important event
- Fixing a broken window, or other surprise household repair
- A last-minute dinner date
- Helping a family member or friend in need
The cost for these unexpected needs can range from $100 to $1,000 or more, and kids need to understand the importance of being prepared for unforeseen situations. As such, many parents opt to start a rainy day account. If the child saves $20 to $50 weekly, the balance will be between $1,000 to $2,600 in a year, an ideal amount to have ready for unexpected expenses.
Watch the Money Grow
The earlier you build a smarter financial foundation with your children, the less of a chore it will seem.
Some parents of younger kids opt to keep the money in a visible place, like a glass jar, so he or she can watch it grow. (Encouraging the child to decorate the jar can also stir up excitement for saving.) Older kids can benefit from a traditional savings account, a high yield bank account or a money market account. Just ensure that the money is accessible without penalties or fees.
Show Me the Money
In order for a child to save, he or she has to earn money. Parents can establish a weekly allowance, one-off compensation for individual chores or tasks, or a combination of both. Kids can also be encouraged to save money they receive as gifts.
Empower your child to make his or her choice about how much to save, and how much to spend. It’s important to let them watch their savings grow at the pace they set so they can develop healthy spending and saving habits.
Another way to drive home the importance of fiscal responsibility is through play. Board games like Monopoly, Life and Pay Day feature income, spending and saving principles. Kids quickly learn that a spend-everything strategy could cost them dearly later on, especially when they land on your Boardwalk square!
Save for a Family Goal
Saving is also fun when the family works together to reach a goal that pays for an excursion, vacation or experience. Encouraging kids to contribute empowers them to make decisions and creates feelings of success and inclusion. Make a chart to track donations and celebrate milestones.
When kids learn financial responsibility, the lessons last a lifetime. And your rainy days will be more enjoyable, too.