Teaching Kids to Set Savings Goals
Friday, Aug 11 2023
The habit of saving money is a valuable life skill. As younger people fall faster into credit card and auto loan debt, sharing financial knowledge early and teaching them about savings goals will set your kids up for success later in life.
Financial literacy involves understanding budgeting, saving, investing, debt, and credit. Parents can be crucial in helping teach children about unnecessary spending, savings goals, and financial habits.
Inviting your children into real-life financial situations and showing them potential economic opportunities is the best way for them to learn. This approach will set them up to make informed decisions about money and manage their finances in a way that helps them achieve their goals.
So, the next time your child wants a new video game or the latest sneakers, it may be time to start the money conversation.
Why Teaching Kids About Savings Goals Matters
Adults comprehend the importance of money, but children are often shielded from the concerns of earning and saving money.
Talking to your child about finances may be uncomfortable at first, but discussing how money is earned can help them understand and appreciate the work and effort of making money. Start the conversation by connecting the concept of money and work. You can explain how you or your partner receive a paycheck because you performed specific duties.
Share lessons about debt, unwise purchases, or lack of savings goals you experienced. Your vulnerability will allow them to open up and ask questions now and in the future while teaching your child valuable lessons.
It’s equally necessary to share your financial wins. These can be motivating and inspiring to a young person. Share personal stories of how you have increased your income, paid off a debt, saved for a car or home, or built an emergency fund.
Turn day-to-day experiences, such as filling the gas tank or picking up groceries, into teaching moments. Make it fun through role-play or online budgeting games. Create scenarios for your child, including a career, salary, and expenses, and walk them through how they would set up a budget.
How to Introduce Savings Goals to Kids
For young children, savings goals can be a difficult-to-understand concept. Keeping age-appropriate and ongoing dialog throughout their life shows your kids what you value and will shape their spending habits.
Here’s an age-by-age guide to help you introduce your kids to savings goals:
- Ages 3 to 5. It’s at this age that children start to understand the value of goods and prices. It’s best to keep the conversation simple. Familiarize your child with coins and bills. Use counting to show how the money will add up if they save it. The grocery store is an excellent place for your child to observe cash at work. Involve them in the grocery list process. As you walk through the store, have them check items off your list. Have them go through the transaction process with you by putting things on the conveyor and handing the cashier money. What better way to learn about money than by playing shop and having them price items?
- Ages 5 to 10. You can begin to introduce a small allowance. Consider tying money to completing small chores such as folding the laundry or taking the trash to the curb. Capitalize on this by allowing your child to take a few dollars to the store and choose between two items. Children can learn to differentiate between wants and needs. Explain coupons and sales and how to make the purchase decision. Talk to your child about having a safe place to keep money. Take them with you the next time you go to the credit union.
- Ages 10 to 15. Now is the time to discuss budgeting with your child. It’s also an opportunity for them to earn more through additional chores, mowing the neighbor’s lawn, or caring for the family pet. Reinforce how a budget can help them achieve their goals and make better financial decisions. Start incorporating goal-oriented saving and long-term wants. Work with them to break down their budget into three categories: saving, spending, and donating. Include children in family discussions about budgeting. Bring them into the conversation on the family vacation or outings. It shows them how money can be leveraged to get things they want. It’s also a critical age to discuss advertising, especially regarding social media.
- Ages 15 to 18. Time to go to work. At this age, you want to let teens experience the independence of making and having their own money through a job. Have your teen self-fund their wants, such as make-up, clothing, and video games. And it’s time to open a bank account in their name.
Choosing Savings Goals
Part of teaching children how to save money is learning to spend it. A component of this is distinguishing between wants and needs. Helping children learn how to spend money on what they want now while saving for the future is an integral part of teaching personal finance.
You can use portions of your budget to illustrate how needs come before wants in spending. It can be an opportune time to share how you distinguish between wants and needs.
For example, your family needs to eat dinner every night. You can explain how you want to go out to a restaurant every Friday night, but you only go once a month, so you can instead build up your vacation fund to spend on your next camping trip.
As your child ages, it’s easier for them to understand the consequences of unexpected expenses. Talk about scenarios like car insurance, streaming services, or a cracked cellphone screen. These real-world situations can help them define their needs versus wants.
How to Help Your Child Set Saving Goals
In an age of instant gratification, teaching your child the value of setting and achieving financial goals is critical. While it may seem like a topic for teens, setting money goals can begin early in elementary school.
To set your child on the pathway to success:
- Identify a Specific Goal. Helping children define a goal can get them motivated. If your child has something they want to buy, the goal amount would be the purchase price. Set attainable goals that require effort. An unachievable goal will lead to frustration and your child giving up. Consider creating short- and long-term goals.
- Break it Down. Break down the goal into manageable bites. If they plan to buy a $40 video game and get an allowance of $10 per week, help them determine how long it will take to reach the goal. If the item is exceptionally pricey, consider matching their savings.
- Set a Deadline. Set a realistic target date to achieve the goals. Consider creating smaller goals within the timeline to help things feel more manageable. For example, if their deadline is one month away, make weekly savings goals to help them reach their more significant goal. Have ongoing discussions about timing. Whether you schedule a regular weekly check-in or daily chats, keep the conversation going.
- Determine How They Will Earn Funds. Brainstorm ways your child can make extra money, such as selling toys they no longer play with or setting up a lemonade stand. Can they get a part-time job or babysit? A part-time job can put the value of money into perspective. It will also be a lesson about the reward of hard work.
- Track Progress. Having your child write down their purchases and add them up at the end of the month can be an eye-opening experience. Tracking their purchases can encourage them to think about their spending and how much faster they could reach their goal if they change their spending patterns. For younger children, create and display a progress chart. It could be as simple as a sticker chart hung on your refrigerator. This visual will encourage them throughout their saving journey. Plenty of apps are available to help your teen track their goals and spending.
- Set Money Aside. Spending can often be tempting if the cash is easily accessible. One way to encourage children to save is by providing a place to put their money. When children are young, a piggy bank offers an excellent visual for saving money. Later, consider opening a student account which will allow them to protect their cash and grow their savings.
- Incorporate Giving. Encourage your children to demonstrate their values with the money they receive and earn. Help them identify a nonprofit to support. Consider causes your child cares about, maybe an animal shelter or local park. Consider pairing a volunteer experience with a monetary donation.
- Let Them Make Mistakes. Remember, money management has a learning curve. Expect mistakes along the way. Part of letting children control their own money is allowing them to learn from their errors. It’s tempting to step in and steer children away from a potential mistake, but it may be better to use the mistake as a teachable moment.
- Celebrate Success. Once your child has reached their savings goal, allow them to purchase what they saved for. If children learn to set and accomplish goals, they better understand the value of their purchases. If you agreed to match their savings, make sure you’re ready to do so, too.
Focus Sums It Up
Giving your children the knowledge and help to reach a savings goal is a life lesson they will carry with them throughout their adult lives. Getting them financially established is one of the best gifts you can provide.
At Focus Federal Credit Union, we offer the tools, resources, and financial solutions you need to ensure your children get a head start on their financial roadmap. Check out our MoneyEdu program today.