Teaching the ABCs of Savings
For the majority of folks, the goal of saving remains elusive. Statistics show that our saving rate has been in decline since the early 80s. In the first quarter of 1999, Canadians set aside a measly 1.9% of their income for savings of all sorts. Our savings rate eventually fell into negative territory. And while the trend has been upward for the last little while, the amount of debt we’re also now carrying has put us at greater risk than ever before.
For all the mistakes we as a nation seem to be making when it comes to putting aside a little for a raining day, there are those people who, regardless of how little money they earn, manage to save. Why? Well, maybe it’s because saving was stressed in their households. Maybe it’s because they formed the habit early. Or maybe it’s because they see the benefit. Fact is, while saving may come naturally for some, for many others it’s a skill that has to be learned. And you, regardless of your current predisposition to saving, or not, you are your children’s teacher.
So here I want to present the A, B, and C’s of savings: Make savings automatic; bury your savings; and be consistent. Teaching your children the ABC’s of savings may make the difference between a child who has a good savings ethic, and one who spends every red cent he makes because he’s never learned to defer gratification.
A: Automatic Savings. When people decide to save what’s left over after expenses, very little every goes into the savings account. Smart savers pay themselves first each month. And they have a definite amount and date to save. For kids, the savings habit starts when you introduce them to the idea of putting 10% t of everything they get in the way of allowance or earnings into a savings bank or account. Started early in life, this becomes a natural part of managing money. And it’s a skill that will serve your children well for the rest of their lives.
B: Bury the Money. Out of sight out of mind is the mantra for successful saving for some folks. Left in their wallets, kids will soon find a good reason to spend their money. The ritualized act of putting that money in a container from which it is not taken on a whim creates a strong sense that money saved is untouchable — exactly what’s needed for a savings program to be successful.
C: Consistency. Remember the story about the tortoise and the hare? It’s the regular, steady, on-going additions that add up. Quick starts and stops are difficult to manage and bring far less of a sense of personal satisfaction.
But what about the child who refuses to save? What can you do? Here are some things to work through with your child to determine where the problem lies.
- Why is she having difficulty saving? Expenses that keep cropping up may be throwing her best efforts off.
- Help your child re-evaluate his spending plan. Perhaps he is simply not receiving enough to meet his commitments.
- Where is the money being spent? She may be giving in to many of the same consumer pressures adults feel.
- Is he able to anticipate and prepare for unexpected expenses? This, in itself, is an important lesson.
- Is your child’s lack of commitment to saving simply a result of having too-easy access to the money (i.e., she hasn’t buried it deeply enough).
Saving can be surprisingly easy and rewarding for children. It helps them to develop a sense of security and mastery over their money. They can see the results of their discipline and efforts as their account balances grow. And, as they accumulate savings, they begin to see their money earning greater and greater amounts on its own. “With our pathetic rates of interest?” you exclaim disbelievingly. Well, you may have to step in here to make the point a little more exciting for your kids.
One of the most effective ways of motivating a child to get into the savings habit is with a savings-matching program. You offer to match every dollar your child saves within a specific period of time with a dollar of your own. Alternatively, you might offer to match her savings if she can save a specific amount by a certain date. “Molly, now that you’re working regularly (or getting a higher allowance), you may want to consider saving a little more of your money. Here’s the deal. If you can save sixty dollars by the end of the summer, I’ll match that amount so you can begin investing.”
A matching program is an excellent way to inspire children to stay focused on a long-term goal. How you choose to implement the program will be a matter of personal preference. You might decide that if your daughter saves her first year’s university tuition, you’ll spring for her second and third years. Or if your son decides to travel the world, you’ll spring for his Euro-rail pass, or some other part of the trip. What’s important is that your child sets a goal and actively works towards achieving that goal, and that you support his efforts.