How to save money and be financially independent is a crucial financial lesson you need to inculcate in kids at a very young age.
“It is very important for parents to have regular conversations with their kids and look for points in time where kids are showing interest in finances and taking advantage of it,” says Paul Golden, Managing Director of Media and Communications for the National Endowment for Financial Education. After all, parents are the number one influence on their children when it comes to money.
Forming good savings habits early can save you a lot of stress down the line, and it can also make a big impact on your children’s financial well-being, as they grow older. With that in mind, here are five ways experts say parents can set their children up to be savers and financially independent.
Give your kids an allowance
Having an allowance can teach kids how to budget and save money, says Golden. One good way to do this is to give kids a fixed sum of money on a consistent basis: “What you’re doing is trying to create what it’s like to have a paycheck,” he says. “If they spend all the money within three days of receiving an allowance and run out, then they have to wait until they get paid again.”
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If you have several kids at different ages, be mindful of their stage of life and how much they may need. As they get older and develop better money management skills, you may want to consider increasing their allowance.
Pay kids for doing chores
It can be beneficial to pay children for work around the house, says Gregg Murset, CEO of BusyKid, an app that helps kids earn, manage, and save money. “You can use chores to incentivise your kids to earn money in a meaningful and productive way.”
He suggests paying more for time-intensive chores like washing the car or cleaning out the garage. That way, kids can learn how work pays off in the real world, and they can learn practical life skills, too.
Create rules around gifts of money
Don’t just give them money, monitor how the money is being spent. Setting savings guidelines for money gifted to your kids for celebrations like birthdays, school party can be a great chance to teach them how to manage money, says Golden. You could start by having your child set aside 25% or more in a savings account.
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If your child receives N2,000 for a birthday, try having them automatically put N500 in savings, for example. Developing that habit early will condition your kids to save a portion of whatever they bring in, says Golden. “Building this behaviour will help them to continue to save 20%-30% automatically from paychecks,” he says.
Provide your kids with their own bank account
One way kids can learn how to save money is through their own savings account, says Golden. Having a bank account can teach kids ownership of their money as they watch their savings grow. Having an account of their own can also give kids an opportunity to learn how to use an ATM by depositing and withdrawing money. Now, with many banks offering savings account for kids, it is pertinent to take advantage of it. However, he says, parents should be cosigners on the account and monitor transactions.
Let your kids run errands
Golden suggests sending older children into the grocery store with N500 or N1000 and a list of items to buy, like milk and eggs. Then see if they veer from the list and buy something like sweets or biscuits. “This is an example of learning [the difference between] needs versus wants,” he says. Letting kids make spending slip-ups that you can easily correct and derive a lesson from can prevent them from making spending and savings mistakes as young adults.