Starting Early

You can begin teaching your child how to save as soon as she is old enough to understand that money is used to purchase things like toys and food.

• The first lesson you want your child to learn is the relationship between money and work. Start with a small allowance and a list of small chores that must be completed before payment.
• Now sit down with your child and make a wish list of things she wants. Pick one that fits his budget and explain that he’ll need to save money each week in order to have enough money to buy it later.
• Delayed gratification is very difficult for children, so set his target no more than a few weeks into the future. Anything longer than a few weeks invites frustration.
• Expect your child to struggle with the idea of saving money. Here’s how to effectively change it from an abstraction into a concrete concept.

Use Visuals

• Each allowance period, help your child separate spending money and savings.
• Place savings into a clear container and leave it in your child’s room so she can see the coins pile up.
• Make a graph on a piece of construction paper and help him chart his progress.
• Talk frequently about the big purchase you’re planning together.

Give Your Child Control

• Within reasonable limitations, allow your child to spend her remaining allowance how she sees fit.
• Provide matching funds for any amount your child saves above the mandatory minimum.
• Let your child handle the money when making purchases.

Short-Term Actions

• As your child grows older, you can create longer target dates for purchases.
• Encourage responsibility by dropping mandatory savings requirements while making your child responsible for paying for one or two coveted but nonessential items from his allowance.
• By middle school, your child is old enough to understand how to open and use a savings account. Start separating savings into short-term goals like the purchase of a new gaming system and long-term goals such as saving for college.
• Encourage your child to rely less on you and more on entrepreneurial enterprise to earn money.
• Suggest odd jobs that could be done around the neighborhood, and make sure he pays for the business expenses like buying gas for the lawn mower if he mows the neighbor’s yard.
• If your child has a job with earned income, begin putting a portion of earnings into a Roth IRA. Because this is retirement money that your child won’t see for a long time, it’s important to discuss investing and the power of compound interest. You can use the compound interest calculator at http://moneychimp.com/calculator/compound_interest_calculator.htm to demonstrate how saving and investing just a few thousand a year can add up to big money over time.