Why Teaching Kids to Save = Teaching Financial Freedom
There are a number of important skills that our children need to learn in school to be successful in life. Reading, writing, math, and so on. One that I feel is not emphasized enough is basic financial skills. Like the other topics, this is something they will use everyday of their lives. Just as being poor at reading or math will make many aspects of lives difficult so will having a limited understanding of financial concepts. We need to begin teaching these lessons to children early so they carry them on into their adult lives.
People may believe that the only way to become rich is to write a software program and sell it for millions, or own a highly successful business, or hit the jackpot in Vegas. This is not true however. There’s one simple strategy that anyone can use to accumulate wealth.
Learn to SAVE! That’s right. The not-so-secret strategy I’m referring to is to be a diligent saver over a lifetime!
The key parts again: 1) Save every year, and 2) over their lifetime. Consistently spend less than they earn and save the rest every year. Year after year. And START EARLY! The younger they start the greater the opportunity available. The more TIME they have on their side the easier it becomes!
The math of compound interest tells us that saving even just a few thousand dollars per year, each year, over 10, 20, 30, 40 years can grow to a sizable amount. Start them when they are young and teach them to save part of any money they get. Say 10-20%. Begin by setting up a savings account for them. Many banks have no fee child starter savings accounts that don’t have minimum balance requirements. To begin with the amount they put in each year might just be $25 or $50. This doesn’t matter. Initially, the idea is to start a habit and show them the interest they earn from the bank. My kids think it’s pretty cool that they have their own accounts. As they get older the amount of money they receive and earn each year should increase and so should the amount that is deposited.
Another important concept should be the idea that they are not going to raid this money every time they see something they want. I’ve had to remind my kids on a number of occasions that this money is to be saved and added to for a long time.
One solution is to help them to set aside a second pot of money that is being saved for their special purchases. This money doesn’t need to be in a bank account. It just needs to be separated out so they don’t spend it right away. For example, every time they receive money they save 10% for their long-term savings account and maybe another 30% for their spending bucket. The other 60% can be spent on something they want right now. Doing the math on this each time can be a good learning tool also. But I don’t focus on that too much because the primary emphasis is just getting them used to saving something from what they get. Keep it easy for them.
So if my kids’ grandparents give them $50 for their birthday then I try to get them to put $5 in their savings (10%). They generally don’t argue with a small amount such as this. I’ve also had them decide to put a larger portion in. Which is a great feeling because I can see that they realizing that they are often wasting the money and want to put it away so they don’t.
If we teach our children how to save starting at an early age they have a HUGE advantage and giant opportunity. Unfortunately, a very large number of people don’t begin saving until they are in their 30’s or 40’s or later. What if our children were to start when they were 10? Just think of what they can achieve over their lifetimes.
Regardless of whether they become a doctor, soldier or teacher the lesson still applies. Accumulating wealth is about learning to consistently spend less than you earn and save the difference.
If we teach them this habit while they’re young they can apply it for a lifetime!