Guest post by Dayia Murdock. This article first appeared on the Cache Cow, the blog of our sister bank Lewiston State Bank.
To help your child prepare for their financial future, it is important to teach them about savings while they are young. A study by the Money Advising Services done in the UK found that most children form their money habits by age 7. This means parents should take an active approach to teaching children principles such as the value of a dollar, patience, and cash handling well before they even reach the 2nd grade. Teaching younger children about such complex principles can be difficult, so we have compiled a list of suggestions for you to consider as you start.
Start while they are young
According to Beth Kobliner, author of the New York Times bestseller Get a Financial Life, children can typically grasp the concept of money by age 3. The younger you start teaching about finance principles, the better off your child could be when they reach an age where they are handling their own. Try to incorporate systems where they can earn money (even if it is play money) at younger ages, and find ways to allow them to practice making purchases.
Make it visual
Find ways to help them visualize their earnings, especially their savings. We suggest using several clear jars as piggy banks. Have multiple categories such as saving, spending, college, charity, and other longer-term goals. Teach them to split everything they earn into percentages that they can divide among the jars. This helps them visualize each of their “accounts” and often encourages them to keep going as they see the jars fill up.
Relate it to real world applications
Some parents will use a fake monetary system in their homes to allow children to practice paying for necessities as well as miscellaneous purchases and savings. Children can earn their money by participating in household chores or schoolwork and use it to spend on screen time, snacks, toys, and clothing. This is a great way to help children understand the value of a dollar and instill great financial habits.
To encourage your children to save, you might also implement a matching system, similar to a 401(k). Make an agreement with your children that for every dollar they put into savings, you will either match it or match a percentage. This is a great incentive for children to save and can help them conceptualize the importance of long-term savings plans.
Talk about money
Be vocal about your finances with your children. When you are making a big purchase include them in the process and talk to them about the time it took to earn enough to pay for the item. Talk to them about scenarios where they might need their savings such as college tuition, buying a house, or other long-term goals. The more vocal you are about finances, the more confident your children may be when they need to do it for themselves.
Be a good example
Most importantly, try to be a good example for your children. Most children have the same spending habits as their parents, so try to implement healthy financial practices in your own life.