The Importance of Teaching Your Kid Savings & Good Money Habits at an Early Age
If you could send a note to your younger self with some hard-won advice, would it include a plea to skip the toys and candy in favor of putting your allowance in an interest-bearing account?
The basic principles of financial health are all-too-often learned reactively, after making mistakes in adult years, rather than early enough to avoid common pitfalls.
The best way to prepare for a lifetime of financial success is to learn good money habits as early as possible. Do you have the tools you need to help your children succeed?
How Early Do You Start Teaching Good Money Habits?
Lifelong money habits begin to be developed as early as age three, and behavioral researchers recommend parents start teaching about money in preschool years.[1] While that may seem early, keep in mind that young children observe parents making purchases in stores, associate pleasure with newly purchased items, and are exposed to advertising from their first television or tablet viewing.
Before starting school, they’ve already begun to be educated about money, and most of the early lessons lean toward limitless spending and consumption.
Piggy Bank Lessons
The concept of saving can be introduced using a piggy bank fat with coins. Consider one made of clear glass or with a viewing window to help illustrate how the money grows.
You can also use a piggy bank to introduce the ideas of:
- Savings goals – Will you keep feeding the bank until it’s full? Or open it on a certain date? How will the money be used? Engage in discussions and questions to encourage a combination of a savings requirement with your child’s ability to participate in decision-making about money.
- Savings as a percentage of income – Include feeding the piggy bank a regular amount as part of a money routine. For instance, if allowance includes four quarters every Tuesday, one quarter goes in the piggy bank, and your child can choose to either save the other three or use them toward fun money.
- Multiple savings funds – Instead of one piggy bank, use two or three. Label them based on goals such as main savings, holiday gifts for others, a donation to a special cause, or a big-ticket item on their wish list.
- The rewards of saving – As your child becomes used to the basics of piggy bank habits and decisions, consider introducing a reward that reinforces the value of saving (like interest will do once the pig is replaced by a savings account book). This could include a contribution plan with matching funds up to a certain amount or during specific times—like the first week of every month, if they choose to put their full dollar allowance in savings instead of a single quarter, you’ll put in 50 extra cents.
Money Lessons Throughout Childhood
It doesn’t stop once they’re past piggy-bank age. Financial education should be staged across childhood so your 18-year-old is prepared for the legal responsibility of their own accounts and money choices.
According to research from the Consumer Financial Protection Bureau, the ability to make informed financial decisions as adults is built on key building blocks (ideally) learned and practiced in childhood, such as:[2]
- Executive function to plan, retain information, solve problems, and control impulses
- Financial habits, norms, and values
- Financial knowledge and decision-making skills
Topics to discuss as children move into teen years include:
- Understanding need vs. want
- Expenses and what it takes to run a household
- Budgets: what they are and how they work
- Income and its sources: business, employment, investment, passive
- Taxes—income, sales, property, etc.—and tax freedom day
- The magic of compound interest
- Investing basics
- Avoiding debt, fees, and penalties
- Frugality to luxury: the role money plays in values and happiness
How North Jersey Federal Credit Union Can Help
At North Jersey Federal Credit Union (NJFCU), we know that good money habits start early, and we support our members in introducing their children to financial information and practices that will set them up for success.
The best-saving accounts New Jersey has to offer children are at NJFCU. Our Youth Club Account is a savings account you can set up for your child under the age of 17 with a minimum deposit of only $50. They’ll be able to view their account online and see it grow over time, plus receive a $3 bonus from us for every “A” they receive on their report card.
If you’re not already a part of our family, click here to join the credit union New Jersey residents rely on today! We have locations in most parts of NJ including Bergen County, Passaic County, and Newark, NJ.