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Helping Kids To Save

February 3rd, 2014 -

Ages 3-5: The Lesson: You may have to wait to buy something you want.

Activities For Ages 3 To 5

1. Create three jars – each labeled “Saving,” “Spending” or “Sharing.” Every time your child receives money, whether for doing chores or from a birthday, divide the money equally among the jars. Have them use the spending jar for small purchases, like sweets or stickers. Money in the sharing jar can go to someone you know who needs it or be used to donate to a friend’s cause. The saving jar should be for more expensive items and could be put into a bank savings account to earn interest.

2. Have your child set a goal, such as to buy a toy. Make sure it’s not so pricey that they won’t be able to afford it for months.  You want to set them up for success.  If your child does have an expensive goal, come up with a matching program to help them reach it in a reasonable timeframe.

3. Every time your child adds money to the savings jar, help them count up how much they have, talk with them about how much they need to reach their goal, and when they will reach it. This behavior is really fun for kids and it gives them a sense of the importance of waiting and being patient and saving. If the child has a long term goal discuss the option of depositing their savings into a bank account then they can get the benefit of earning interest and watch the savings grow by getting a statement every now and then.

Ages 6-10: The Lesson: You need to make choices about how to spend money.

At this age, it’s important to explain to your child, “Money is finite and it’s important to make wise choices, because once you spend the money you have, you don’t have more to spend. While at this age, you should also keep up with activities like the saving, spending and sharing jars, and goal-setting, you should also begin to engage your child in more adult financial decision-making.

Activities For Ages 6 To 10

1. Include your child in some financial decisions. For instance, explain, “The reason I chose the generic grape juice rather than the brand name is that it costs 50 cents less and tastes the same to me.” Or talk about deals, such as buying everyday items like paper towels in bulk to get a cheaper per-item price.

2. Give your child some money, like $2, in a supermarket and have them make choices about what fruit to buy, within the parameters of what you need, to give them the experience of making choices with money.

3. When you’re shopping, talk aloud about how you’re making your financial decisions as a grown-up, asking questions like, “Is this something we really, really need? Or can we skip it this week since we’re going out to dinner?” “Can I borrow it?” “Would it cost less somewhere else? Could we go to discount store and get two of these instead of one?”

Ages 11-13: The Lesson: The sooner you save, the faster your money can grow from compound interest.

At this age, you can shift from the idea of saving for short-term goals to long-term goals. Introduce the concept of compound interest, when you earn interest both on your savings as well as on past interest from your savings.

Activities For Ages 11 To 13

1. Describe compound interest using specific numbers, because research shows this is more effective than describing it in the abstract. Explain, “If you set aside $100 every year starting at age 14, you’d have $23,000 by age 65, but if you start at age 35, you’ll only have $7,000 by age 65.”

2. Have your child do some compound interest calculations on https://www.sorted.org.nz/calculators/savings. Then they can see how much money they will  earn if they invest a certain amount and it grows by a certain interest rate.

3. Have your child set a longer-term goal for something more expensive than the toys they may have been saving for. “Those sorts of tradeoffs, called opportunity costs — what are the things you’re giving up to save money — is a very useful thing to talk about. At this age, kids are trying to not save because they want to buy stuff, but thinking of what long-term goals are and what they’re having to give up shows that it’s a good decision. For example, if your child has a habit of buying a snack after school every day, they may decide they would rather put that money toward an iPod or iPad.

(information from Forbes.com contributed by Laura Shin)


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