Teaching Children to Save Money

One of the most important things we can do to prepare our children for adulthood is to give them a solid foundation for how they will relate to money later in life. Whether your child is still relatively young, or at an age where money is starting to trickle in on birthdays and holidays, thereby triggering a spending reflex, good financial literacy and a loved one’s guiding hand can help a child to understand the importance of saving their money.

1. The easiest and perhaps most basic way to introduce your child to saving, especially if they are five and under, is to give them a piggy bank. Bonus points if you can find one that you can’t open without breaking. A piggy bank teaches your child that once you put something away, it stays away until you have a really good reason for accessing it. It may also give your child pause the next time they want something. Aim to create a savings goal, something with a dollar amount that you set together. Perhaps there’s a toy they really want, or a trip they want to take to an amusement park or zoo. Giving them an incentive may teach them the value of delayed gratification, and give them a sense of real accomplishment when they finally get to smash the piggy bank open.

2. Depending on the age of your child, you may want to have a discussion with them about what money is, making time to also field questions from your youngster. Many parents in the past have felt that talking about money with their children is taboo, but there is nothing more important than opening such a subject up for conversation. If your kids know they can approach you with questions, it’s possible they’ll be more likely to seek guidance when making bigger financial decisions as they get older. Sometimes, just the conversation alone can create a new thoughtfulness about money.

3. Open a savings account together. Most banks offer savings accounts that can be opened in a variety of ways. When I worked as a new accounts representative, one of the most common accounts I opened for parents with children was an UTMA account. This kind of account is custodial, meaning the parent or guardian is the only one who can access the funds until the child is of age, either 18 or 21. The funds are held by the bank on the child’s behalf, but children cannot withdraw funds from the account unless the custodian is present. Many parents set UTMAs up without their children’s knowledge—to sock money away each month for a car or a college education—but involving your child in the opening of the account and the maintenance of it can really teach them invaluable lessons about the workings of a bank, including building relationships with some of the staff and getting them acquainted with the system of deposits and withdrawals.

4. Open a checking account with your child and allow them to have a debit card with a limit. This option is best for older children who are spending more time out in the world. If your child gets a monthly or weekly allowance, it will teach them how to live within their means. Many banks have apps now that allow kids to check on their balances, allowing them to keep tabs on their finances and hopefully make smarter purchases.

Though there is no one perfect formula for teaching a child the value of money, just opening the subject up for conversation or speaking to an employee of your bank to learn the options available for savings accounts are great first steps to take.