5 Lessons $5 Can Teach Your Child

by Gina Roberts-Grey

Fixed interest rates, IRA’s, money markets and paying college tuition are all concepts and financial options that are as important to adults as they are confusing to children. Whether you’re saving for a family vacation, college tuition, or hoping to purchase a new car, pinching pennies can be challenging. As tricky as saving money is for adults, the concept is far harder for your children to grasp.

Children do not have the experience or maturity to comprehend the benefits and impact of saving – or not saving – their money. Without the responsibilities of working and balancing a checkbook, children do not necessarily understand that money is not an unlimited natural resource. They do not realize how much it costs to feed a family of four, take a vacation, or purchase new clothes every season for growing boys and girls. Patiently saving money to purchase a new computer or gaming system can be a daunting feat for most anxious kids. To a young child, having five dollars on hand equates to having a ’lot of money’ and one hundred dollars most certainly makes you ‘rich’.

If your child is like most, he receives money from a thoughtful relative or friend as a birthday gift or earns a weekly allowance but he may not possess a strong concept of how to save his money.

Do you know if your child is aware of the possibilities that saving money brings? What are his money saving influences and does he have tangible examples to learn how to save?

Financial experts agree that fiscal responsibility and solvency begins with a proactive and knowledgeable attitude. Certified Financial Planner and Spokesperson for the Financial Planning Association, Mary St. Lawrence ChFC of St. Petersburg, FL urges her clients to include their children in family financial planning sessions. “Letting children know that money requires managing gives them s great start,” teaches St. Lawrence.

With just five dollars, you can begin to instill sound financial planning skills and knowledge in your child. You’ll provide invaluable beliefs and ideals that will be beneficial to your child throughout his entire life.

Does the bank eat my money? One of the most powerful ways to teach children to save money is letting them see the money collect. A child under the age of six might not fully understand that taking his birthday money to the bank is in fact the act of ‘saving’ it. Unless his savings account yields a high interest return, St. Lawrence advises letting children see their allowance or birthday money accumulate before quickly depositing it in an account.

“Cashing a relative’s check, adding it to his other money and then depositing it is a great way to develop the concept of saving,” offers St. Lawrence. Because children do not always understand the exact value of a check from a generous relative, taking him to the bank to first cash the check, talk about it’s value and then having your child make the deposit helps him become a part of the process and understand that checks do not represent an undetermined or unlimited amount of money. “This also helps children realize that the bank doesn’t ‘take’ their money,” adds St. Lawrence.

Set a good example. You’ll teach him a valuable lesson as well as help him pad his own nest egg by allowing your child to physically see you save money. Certified Public Accountant and business owner Richard Kessler suggests his clients establish a ‘home savings account’. “When a child sees you add your loose change or just five dollars a week to a milk jug, shoe box or plastic container, he understands the concept of ‘building’ a savings. It’s important that children have a tangible example to attach to this concept,” explains Kessler. A once a month family trip to deposit the proceeds of your home savings account is another layer that teaches children the process of saving.

What’s in the cookie jar? Start a new family ritual to empty your pockets of all the change you collect every day. Set a family goal to save at least five dollars worth of change a week. At the end of the month, your children can help you sort out and count the savings. Realizing that there is enough change to purchase a new family DVD helps children equate saving money with establishing financial goals.

Track his progress. Financial Advisor Michael Butler of Evanston, IL recommends charting your child’s financial progress. “Reviewing complicated monthly statements don’t always provide enough instant gratification for young savers,” cautions Butler. Posting a goal thermometer or chart on his closet door provides consistent reinforcement for a child to maintain focus on his goal. A child working toward saving for a new bicycle or gaming system will know exactly how much money he needs to achieve his goal. Additionally Butler suggests, “Reviewing the monthly or quarterly statements of a child’s savings account with him solidifies the progress and potential you’ve reinforced at home.”

A little saved goes a long way. When Judy Parker‘s sixteen year old daughter started working, she was delighted at the thought of finally spending her ‘own’ money. “She was not pleased when we urged her to start her own savings account to deposit her paychecks into” says Parker. Meredith was determined to test her parent’s theory and decided that every pay period she would save the equivalent of five dollars for every day she worked. “At the end of the summer, Meredith had saved more than $1,000.00, enough to travel to Europe for her senior year class trip” Judy proudly professes “I’m confident she’s learned the significance of saving money – even if it seems likes a small amount per paycheck.” SFM

Gina Roberts-Grey is a freelance writer. She writes for numerous parenting publications around the country.