Money management is a complicated subject even adults can experience trouble mastering. So, it’s understandable if the prospect of teaching your kids about money might not be your favorite parental to-do. Start simply with a certificate of deposit to teach your kids the fundamentals of saving money.
Set up an account
A drive-thru or online field trip to a financial institution is in order. There, you can speak with an account specialist who will walk you and your child through the process of opening a certificate of deposit or Student Savers account. Seeing his name on the account will provide your child with a sense of ownership over his money and incentivize his willingness to make regular deposits.
“Explain how compounding interest works, what an annual percentage yield for savings is and how to compare APYs for different savings accounts,” advises Rebecca Lake on The Balance.
A joint savings account provides a safe training ground for your kid to learn about finances; the fundamental lessons he learns about saving with you will serve him well when it’s time for his own account, according to NerdWallet writer Tony Armstrong.
Telling your child to save money is too general of a statement. You need to help him implement a savings practice. If he receives money for his birthday or a holiday or earns an allowance from doing chores around the house or money from a part-time job, he should put a portion of his cash in his savings account. This regular practice will help his bottom line grow and establish good money habits.
Give your child goals
Saving for the sake of saving won’t exactly excite your child about managing money. Working toward the purchase of a new toy, game or activity, though, will make him feel that his savings efforts are worth it and teach him a valuable life lesson — good things come to those who wait (and work hard).
“If they know what it is they want to save for, help them break down their goals into manageable bites,” Lake writes on Investopedia. “For example, if they want to buy a $50 video game and they get a $10 allowance each week, help them figure out how long it will take to reach that goal, based on their savings rate.”
Keep it top of mind
Just as your child grows, his comprehension about money will, too. Keep the money lessons ongoing, altering them to align with your child’s age, ability and interests, Lake advises on The Balance. By establishing open communication about money, saving and investing (when the time is right) with your child, you’ll help him master his future financial independence.
Save by example
You are your child’s first and constant teacher — there’s no better way to teach then by setting a financially-sound example.
“Getting your emergency fund in shape, opening a 529 savings account, or simply increasing your 401(k) plan contributions are all steps that you can take to encourage saving as a family activity,” writes Lake on Investopedia.
Start the money conversation early and keep it consistent to help your child learn to be a saver and a lifelong money-management master.