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Frugal Family: Teaching Young Children to Save

Start young for a lifetime of good financial habits.

Children, by nature, are spenders. Most kids, having just opened birthday or holiday gifts, will want to go out right away to redeem any gift cards or money, despite the new toys and games they may have just received. When kids are given an allowance or earn money by doing chores, they’ll often want to spend it right away. As they get older, of course, they’ll start getting the hang of saving up for something bigger, or holding on to money for another day. But, how can we teach young children the value of saving money and making wise choices when it's time to go out and spend it?

Madison DuPaix, a personal finance specialist and mother of three young children, says, “many schools in our public education system omit money management as a fundamental learning activity. Because adults often use the money management skills they learned as a child, it is important to educate our children and equip them with the financial skills necessary to be successful. Together we will teach our children to manage their money responsibly and empower them to become financially savvy adults.”

She offers several ideas for teaching children to save: 

  1. Save money in front of your children. Children learn by example. If they see you saving money toward something special, it will make an impact. It can be as simple as saying “no, let’s hold off and not buy snacks at the pool/sports field concession stand this week and save our money to go out for a dinner this weekend.” Teach them that avoiding that $5 daily expenditure on junk food (by packing snacks from home) can add up to a $25 or $30 dinner out for the family later in the week. Or, if you are looking toward a family vacation, let your children know about any sacrifices you are making in order to save those pennies. They’ll appreciate the trip much more if they are part of the planning and saving process. My own children have picked up on this and have designated a piggy bank as “The Disney Jar.” Every penny, nickel, and dime they find on the sidewalk or couch cushions goes into that jar, as well as their hard-earned dollars and tooth fairy money. This is something they’ve come up with on their own. Of course, I don’t expect them to earn enough for a trip (they’re still pretty young and don’t have a means of earning more than a couple of dollars a week), but won’t they be excited about souveniers when I convert that loose change into gift cards for them when it’s time for our trip?
  2. Open a savings account in your child’s name. Many banks allow this with minimum balances and deposit amounts (an adult just needs to be listed on the account, as well). Having official bank books and bank statements can be great motivators, not to mention the free lollipops most banks still offer to patrons.  The Bank of North Georgia offers a “Minor Savings" account plan for anyone under the age of 18.  There’s no minimum balance, no minimum deposit, no monthly service fee, and they pay interest on every dollar.
  3. Consider matching your children's savings. Businesses do it, so why not families? For little ones with little savings, a 100% match may be possible, but as they get older, a 50% or even 25% match could be great motivation. Just make sure to set the ground rules up front. If you match funds, what are the conditions? How long do they need to save the money before it can be spent?
  4. Encourage them to make wish lists and set goals. If children know what they’re saving toward, it’s much easier to hold onto that money. The first time my oldest child “saved up” for anything big, it was for a $50 game that he wanted. It wasn’t a birthday and Christmas wasn’t coming up, and we don’t make a practice of making purchases like that “just because.” So my husband and I told him that if he could save up $25, we’d give him the other half. We offered to pay him for doing extra chores around the house, and after a few months, he had saved up his $25. Throughout the process, we watched him learn to make choices, to consider things like instant gratitude versus delayed gratitude (deciding not to make small purchases so that he could save his money toward the game), and he really appreciated and enjoyed the reward at the end, much more than he would have if we had just handed it to him when he asked for it.
Jennifer Burrell June 05, 2011 at 08:19 PM
My girls made three-part banks that they've enjoyed using. Each part is labeled - save, spend, or give. When either of them express interest in purchasing a certain item, we talk about how much it costs and how long it will take to save for it, as well as how much use or enjoyment they feel they'll get out of the item or experience. Typically we try to aim for experiences over things, but either way, when they have an active part in the saving and discussion, they're more likely to really value the toy or game or whatever it is.

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