Lack of financial literacy in young adults is a growing problem that leads to a lifetime of struggle with financial capability and independence as adults. They will spend much of their early adulthood learning these lessons the hard way, and unfortunately, at that point, it is significantly harder to change that ingrained behavior.
Fortunately, teaching kids to be good stewards of their money can be an easy and engaging experience that will pay off in dividends for the rest of their lives.
Teach them early
The learning experience can begin as early as the first time they get upset for not getting that coveted toy on aisle 5. That in itself is a perfect opportunity for their first lesson about saving money. This is a chance to explain the purpose of going to the store in the first place, and how your money is budgeted for that purpose, and not for buying a toy.
It is important to relay the concept of needs versus wants. While they cannot have everything they want, they should know you will provide for their basic needs. This creates a foundation for healthy financial priorities that will reward them later in life.
Earn and Save
Children naturally have very little understanding of household economics, hence, the tantrum in aisle 5. However, there are ways for parents to introduce some simple concepts that are as rewarding for the child as they are purposeful. Consider establishing a goal, and create a pathway for your child to meet that goal.
For example, having the $10 teddy bear they showed interest in at the store could be their goal. Let them know that they can have the teddy bear if they save for it, and offer them the chance to earn it. It could be incentivized by having them complete simple chores around the house, or financially rewarding their good behavior. Picking up their room may earn them a dollar, while eating all their dinner is an easy fifty cents. When they reach their $10 goal, take them to the store to pick out their teddy bear. They will soon realize that their hard work accumulates and eventually pays off.
Of course, as they get older, there may be opportunities for them to earn money outside of the house. Or, they may receive money as a gift. These are opportunities for more age-appropriate discussions about the impact of spending versus saving.
Saving at a young age
Piggy banks are still a good way to introduce children to money-saving habits they will carry for the rest of their lives. Consider using a large, clear jar, so your child can see it grow over time. Show them that loose change can add up by tossing in quarters found under the couch, and see if they start to do the same. It might even help parents remember that saving money should always be a work in progress.
Help them stay engaged with saving money by regularly counting what they have accrued, and if there is a specific purchase they are saving toward, show them how close they are to earning it. You could even create a simple ledger, so your child can keep track of their deposits and withdrawals over time.
As they get older, consider giving them a journal where they can track their earnings, spending, and saving. Make a habit of reviewing the journal together and staying curious about how you can support them in achieving their goals. With teenagers, it may be helpful to review household finances with them, so that they can see the benefits of tracking budgeting and tracking spending and saving as well.
Open a Savings Account
When a piggy bank just won’t do the trick any longer, it may be time for your children to have their own savings accounts. By that time, they may be saving up for a new video game console, their first car, or even college. Many banks offer savings accounts specifically for minors, like Bank OZK’s First Savings account,* designed with children 17 years and younger in mind.
If your child has a part-time job, it’s a good time to encourage them to budget. If you can get your child to put a portion of their earnings into their savings account before spending, then you have won at parenting!
*First Savings is available for children aged 17 years and younger. The account will be transferred to a regular savings account when the child turns 18.