Teaching Kids to Save in the Digital Age
We tell our kids, “A penny saved is a penny earned.” But how do kids learn that concept when the pennies are digital and all the saving happens online? You can teach your kids concrete money lessons even in the age of abstract digital currency. Let’s look at the how and why of teaching kids to save in the 21st century.
Saving even a few bucks a week helps kids learn how to accomplish big goals, such as buying a bike and planning for unexpected expenses (such as a flat tire, for instance). That sort of habit can help your kids avoid common pitfalls adults often face. A series of surveys in 2016 found that one in three U.S. adults have no retirement savings. In early 2017, Bankrate reported that only four in 10 Americans have enough savings to cover an unexpected emergency expense.
Building the Spend/Save/Share Habit
Start simple, with cash and coins, so your children can see their savings grow. A popular savings approach for kids is the spend, save, and share method. All you need is three jars, one labeled for each category. When your kids get their allowance, chore money, or cash gifts, help them divide it among the jars so they have spending money, savings, and money to donate to charity.
The exact spend/save/share ratio doesn’t matter as much as building the habit. Young kids often like to split their money evenly, while older kids may work out a percentage for each jar — maybe 50 percent for spending, 30 percent for savings, and 20 percent for sharing. If your child really wants to spend everything, you can set requirements for saving and sharing.
Savings Options for Minors
When your kids’ “save” jars fill up, it’s time to learn about banking, says Certified Financial Planner Ashley Parks, author of The Saving Seed: Growing a Financially Healthy Family Tree. Rather than set everything up online, Parks recommends taking your child to a physical bank branch, as she did a few years ago with her then-9-year-old daughter. “She brought in her piggy bank and got to experience the bank. We opened a little custodial savings account so she can watch her savings grow,” Parks says.
A custodial account — often called a UTMA, or Uniform Transfer to Minors Act; it allows for the transfer of assets, including cash, to minors — gives you the ability to manage the money until your child reaches age 18 or 21. What your kids do with it then is entirely up to them, whether that means linking it to a checking account to pay for college living expenses or buying a sports car. For that reason, Parks urges parents to think carefully about how much they want to contribute to their kids’ UTMA accounts.
Before you open that kind of account, ask about fees, and shop around for the best option. Once your kids’ accounts are set up, review each month’s statement together and make deposits whenever your kids have saved up an amount they’re ready to put in the bank.
Balancing a Checkbook and Other “Adulting” Skills
Balancing a checkbook register was a core skill a generation ago, but more than half of today’s young adults never use checks, and many don’t even know how to write one. Still, your kids must understand their cash flow, Parks says, either by printing statements and reviewing them or using online tools, such as You Need a Budget, and a calendar. “The key is understanding where they’re spending their money and being able to categorize it. That’s how they learn they spent $30 this month on apps or a lot on dining out,” Parks explains. “They can put their expenses next to their income and work with what they have left over and what expenses they need to save for, now and down the road.” She also suggests teaching your kids to write a check properly, in case they ever need to do so.
Older teens need a good grasp of key money concepts before they leave the nest. First, Parks says, is explaining the value money can gain over time. Online tools and apps can help them learn how compound interest can boost kids’ savings as time goes by. On the flip side, they also can see how much loans and credit-card debt can cost over time, so they understand why it’s better not to borrow more than they need. Teens should include sales tax and paycheck withholding in their budgets and have clear expectations regarding college expenses such as books and student loans, Parks says.
Make Saving a Family Activity
The best way to help your kids learn good financial habits is to learn as a family. You can make a yearlong family project of saving for Christmas gifts, or you can talk with your teens about the importance of a good credit score. You can also explore the offers for Texas Farm Bureau members at your local Farm Bureau Bank.
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