When I was a kid, I earned an allowance and spent the money as fast as I could get it. When I was able to work a part-time job as a high school student, I was responsible for buying most of my own clothes, making my car payment, paying for gas and buying car insurance. Still, as most teenagers do, I had extra money even after those expenses, and I rarely saved it. Instead, I went to the movies, went out to eat with friends, wasted gas by driving my car past boys’ houses. . .
I had a few friends whose parents required that they save a portion of their earnings for savings or for college. They would complain about the injustice, and I would commiserate. I was happy my mom didn’t impose those rules on me.
Now, I look back and wish that she would have. She could have taught me solid financial discipline, something it took me years to learn. I have three kids of my own now, and only one of them, my seven year old, is old enough to deal with money in a tangible way.
My son has chores, and if he does all of them and maintains a good attitude, he can earn up to $1.25 a day, or $8.75 a week. That can add up to $455 a year, which is amazing money for a seven your old. However, he has two problems. First, he doesn’t really like to do his chores, so he usually only earns 25 to 50 cents a day, and there are plenty of days where he doesn’t earn anything. Of the little money he does make, I have him put aside some for donate and some for save. The rest flies through his fingers on items like envelopes. I kid not. He spent $2 on envelopes! He loves to build complex Lego kits, but he can’t manage to save the $10 it costs to buy a small one. He just can’t delay gratification that long and ends up squandering his money on small items.
I recently heard an expert, I believe it was Suze Orman, suggest that parents should consider motivating their child to save a portion of their money by matching what they save. I have implemented that with my own son. For every dollar he saves in long-term savings, I match him .25 cents. So, if he saves $100 over the course of the year for long term savings, I give him an additional $25.
I also decided to do something like this for short term savings. If my son is saving his money for something that takes more than a few weeks to buy, such as a Lego set that costs $12, I will match him .10 for every dollar he saves. It is not a lot, but he is starting to appreciate getting extra money just for saving.
Some people argue against this strategy, but I see it as teaching my son how things work in the real world. If I am saving for something I want in a year, I keep the money in a savings account and earn interest (though not much in this current economic climate!). If I save for retirement even though I would like to use the money now and my employer matches my contribution, I earn 100% on every dollar saved.
Because I am matching his savings, he learns that it is worthwhile to delay spending because you can actually earn more money by saving. Paying my son interest is a small amount to pay to teach him good fiscal habits that will last him a lifetime.
What are your favorite ways to motivate your kids to save?