How do I teach my kids to save their money?

When they were young, my wife and I thought that the best way to teach our kids to save was to provide them an allowance that was the bare minimum for their needs.  They brought their own “baon snacks and lunch” to school.  They rode the school bus and had some pocket money that we pegged to their age.  Because the money was not enough for what they wanted, they had to learn to save and to be “wise” about their money. They did not seem to be rebelling so we thought we were doing it right.

Now that they are grown up, they tell us that they did not have enough.  They had to be creative to able to get their wants. They would look for empty softdrink bottles to return in exchange for cash.  They would do extra work here and there to earn additional income.  When asked by family and friends what they wanted for a gift, they would express their actual want and if there were an option, they would choose cash.

They each had a “real bank” savings book plus a “home bank” savings book.  For the “home bank”, they would deposit their savings with us and we would pay them interest 10 times more than what they would earn in a “real bank.”  That was real incentive for them to make deposits and limit their withdrawals.

The world is much more complicated today.  However, all the above concepts except perhaps returning bottles for cash still hold true.

I would reduce the main principles that I would teach my grandchildren who are still infants, when the time comes:

  1. Start them as young as possible.  A child is capable of learning so many things at the same time so easily and without fear.  For example, they concurrently learn so many languages, learn to swim, bike etc. and they are not embarrassed to make mistakes or fail. They enjoy, practice and it becomes automatic throughout life.  In the same way, I believe that a child should learn early about the concepts of earning, saving, getting good value for money spent and growing their savings.  Precisely, if all these are second nature to them, they will grow up to be financially healthy.  Some play exercises:+ Include coins in their counting lessons in addition to other items that you ask them to count.  Be obvious that you are using the coins/paper money to buy things.  When they become more curious, you can start them off by teaching them about each coin and bill.  You can also start explaining what the money can buy.+ Play “store-store” in the house first and eventually let your child pay for the purchase in a real store if there are no other customers who are waiting.  You can show them what it means not to be able to buy what they want initially but by saving, they eventually get it.
  2. They should not be allowed to buy anything they want without putting value to their money.  Start the discipline at home on what good value means so their classmates will not influence them in the wrong way. Care, however, should be taken not to make them misers who do not know how to spend even for the right things.
  3. Most important, children should learn that they should share.  However, they cannot share what they do not have.  Thus, they have to learn to save so that they have something to share.
  4. Finally, parents should show their kids good example.  Practice what you preach!

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