Summer School; 4 Financial Tips for Young Savers
“Money doesn’t grow on trees,” and “a penny saved is a penny earned,” are two phrases I’d wager we all heard at some point growing up. While it might not have resonated at the time, the older we get, the more it makes sense. What once seemed like simple phrases, have turned into valuable life lessons that will be passed down to children, grandchildren, nieces, nephews, etc.
Although school may be over for the summer, it’s a great time to continue your child’s education by teaching them some of these life lessons in finance. Believe it or not, it could be the difference between reckless and responsible spending habits later on. Whether you start this education at age five or 15, here are a few tips on how you can give your child the resources needed to be financially savvy.
1. Create savings goals
If your child doesn’t already have a savings account, it’s a great idea to open one. From there, you can teach him/her the fundamentals of saving money. A good place to start would be to create a savings goal. Whether your child wants to buy a new bike, video games, toys, etc., they will learn to save, then spend with a certain goal in mind.
One way to start working toward the goal would be to encourage your child to save at least half of all allowance and gift money. This spend half, save half technique will give them the freedom to make decisions on when to spend available funds and when to save for something bigger. They could also set a goal of saving a certain amount of money each day or week. For example, your child could save $0.50 in loose change every day, reaching $182.50 in a year — or even more if they put the funds into a savings account, where dividends will be earned throughout the year.
2. Track funds and goals
There are a number of ways to track funds and savings goals. One method is to go for an easy approach by creating a simple wall chart or spreadsheet. This could include featuring the goal amount, the current amount saved, and/or smaller weekly goals over the course of a set period of time. If you’re feeling crafty, you could look to Pinterest for ideas on decorative change jars, mixed-media savings charts and other creative ways to make saving exciting and fun for kids.
Going outside of traditional methods can also be a fun way to track savings. There are a variety of apps and computer programs created for children to help them monitor their savings and reach financial goals. The best and most enticing part is that these apps typically tie in a gaming aspect, creating a fun, yet educational experience as the child works toward a goal.
3. Teach the basics of credit
This may seem advanced for some age groups, but teaching about credit early on can be a useful tool in preparing a child who will likely have a credit card and loans later in life. A simple way to start would be by playing games that include some element of lending. From traditional board games like Monopoly, to online games offered by your financial institution, there are plenty of ways to create a framework on how lending, collateral, interest, etc. works.
You could also teach the basics of credit through lending your child a small sum of money. If there is something they wish to purchase, but they do not yet have all of the funds to do so, you can use it as an opportunity to show how the repayment process works. This could be by means of weekly or monthly payments, or automatic deductions from an allowance. You could even include loan terms, interest rates, late fees and/or grace periods to make for a more realistic experience.
4. Get them involved
Allowing your child to learn by doing, through making deposits, withdrawing money and making purchases on their own, will not only teach basic money management skills, but will also give your child a sense of ownership and freedom over their earnings. It’s one of the easiest and most important ways to help your child learn about money, as it will give them a firsthand experience of what it’s like to handle finances and make transactions.
Financial education is important at any age, but the more you learn and the sooner you learn it, the better off you will be. Passing this knowledge on to your children will teach them important lessons in responsibility and how to make good financial decisions. Better yet, it will provide the framework for a successful financial future — and for that, you will both be thankful for years to come.
Tags: children, finance, goals, money, Savings
April Clobes is Executive Vice President/Chief Operating Officer for MSU Federal Credit Union in East Lansing. She can be contacted by e-mail or by calling (517) 333-2254.