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Babies and Families

Financial literacy - Teaching your kids to save money

Spending money comes easy to young people, but taking the time to teach financial literacy to your kids, as well as how to save money, can be a critical life skill that could follow them into adulthood.
You can introduce your children to the concept of financial literacy as soon as they learn to count. F or this reason, it can be important for parents to openly discuss spending money and saving money with their young children. Ensuring financial literacy for your child may be one of the best skills you can teach them early on.

Break the link between spending money and instant gratification

Many parents fall into the pattern of rewarding young children for good behavior during shopping trips with treats or toys at the end of the errand. But it's important to break the association between shopping, spending money, and receiving rewards. Help your children understand that not every shopping trip is about them. For example, take them on trips to shop for gifts for others, and stress the importance of sharing vs. spending. Explain why it's important to give to charitable organizations and involve them in donating money to charitable causes and nonprofits. Use back-to-school shopping as an opportunity to impart important lessons about finances.

As they get older, teach them about the importance of setting long-term financial goals

If your children have an allowance, encourage them to save up for something they really want, rather than spending money as quickly as possible. It helps if their allowances are dispensed in increments that are easier to save, and if they first set their sights on something that can be easily attained within a few weeks or month. Remember, children have short attention spans, and they can get easily frustrated or give up if they have to wait too long.

Help your teen learn how to budget

If teens in your life are just learning how to create and use a budget, then the first step in the process will involve assigning a level of importance to each type of spending. This process can help them start understanding what is important and what isn't when they begin allocating their dollars. (Of course, their definition of what's “important” will probably differ substantially from yours.) But budgeting for teens can help them to start making financial priorities of the things that matter and seeing which things they can get along without. Teens that do not learn this skill may have trouble in the future when they are given larger amounts of money from jobs or inheritances.

But how do you teach your children to save money?

Schools may teach children the math, but the responsibility of teaching kids how to, “pay yourself first” and how to be fiscally responsible falls entirely on parents. By sharing these essential money lessons with your children, you're preparing them for their own fiscal futures. When they are young, teaching your kids how to handle money may seem like a difficult proposition, but there is no better time to help them begin the habit of saving money. Kids who learn financial responsibility early on can become diligent savers and financially responsible adults. The key is to make savings fun and help kids to start associating the concept of forgoing a small benefit now for a large benefit later. Here are some ways that you can help your kids to become diligent savers.

  • The envelope system
    Although there are adults that use this system, it can also be tailored for kids. Help kids to start sorting through their money to see what they need to use it for. Have your kids color or decorate each envelope to help them associate those colors or decorations with achieving a financial goal. For example, they could draw a picture of a train on the envelope that they put money into that will go towards a model train set. A blue envelope could be used for pool toys and so on. It is important to understand that kids need to be able to make visual associations in order to stay motivated. Decorated jars or coffee cans can also be used in lieu of envelopes.
  • Chart their progress
    A big, colorful chart that shows how much progress a child is making towards a savings goal can also help to motivate kids to save. Again, you can put a picture of the item that they are saving for on the chart, so that they can connect their savings with their goal.
  • Reward for saving
    Although saving money should ultimately be its own reward, extra incentives can help younger kids to stay motivated. For example, if your child loves ice cream, then a trip to the local ice cream shop might be in order for every week that they save their allowance. Or they could earn TV or video game time.
  • Create a matching program
    It works for retirement plan participants, so why not do it with your kids? Show your kids how they can rack up bigger savings by mapping out how much they will earn by saving. Again, a chart might be helpful here. One section of the chart could show how their savings are increasing, and another section can show how your matching contributions are also growing.
  • Start a savings account
    Once your child is old enough to understand the concept of interest, it may be a good time to open a savings account either online or at your bank or credit union. Find out if they have any programs for kids, because many savings institutions offer promotions that allow kids to earn prizes or other incentives when they put money in their accounts. Share bank statements with them (either hardcopy or online) so they can visually see their savings add up and how interest is earned.
  • Play money games
    Games like Monopoly and Life can help kids to start seeing the value of saving versus spending and begin thinking about what they need to do in real life to begin accumulating assets.

These are just a few ideas to help teach financial literacy to your kids and to get started on a savings program with them. Other ideas to teach financial literacy to your kids could include setting an example by putting your own money in savings jars where your kids can see it and just having conversations about money with them. Using these ideas may help your kids form a lifelong habit that may continue to serve them throughout their lives.

You can find more financial tips about planning for college or teaching your kids about money by visiting the Protective Learning Center.



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All Learning Center articles are general summaries that can be used when considering your financial future at various life stages. The information presented is for educational purposes and is meant to supplement other information specific to your situation. It is not intended as investment advice and does not necessarily represent the opinion of Protective or its subsidiaries.

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