Financial Advisor, Sean Savage offers some great advice to young families on the importance of encouraging your kids to form good habits in regards to savings and investing. Here is his first in a series of articles published S
Parents cannot delegate financial lessons for our children to anyone else. Teach your children the importance of saving and investing for the future before poor habits are formed. I was fortunate to learn from my parents the discipline of saving money at a young age which put me on the path to make financial advising my profession. My wife Carolyn and I have six children ages 2-22. The following are a few simple ways I teach financial responsibility to our three young daughters (age 6, 6, & 9).
- Lead by Example – If you want your child to be a good saver, be a good saver yourself. Kids will model the behaviors they observe at home. Talk to your children about the importance of saving money for the future. This does not mean saving for a specific purpose, but saving with the idea of accumulating funds to invest.
- Keep it Simple – The most important financial concept for a child under the age of 10 to learn is the importance of saving money. It’s something you can teach before they learn how to read. As your children earn money through chores, achievement, and gifts, encourage them save in their piggy bank and, ultimately, the real bank. Enthusiastically celebrate their savings success so they feel good about their behavior.
- Bank Accounts – Each child should have a bank account by the time they are 5 years old. We make a big deal out of organizing their money and taking it to the bank for deposit. About every 2 months, I load the kids in the car for a Saturday morning trip to the bank. Each of them goes to the counter to deposit their money, get an update on their account balance and, of course, pick out a sucker. A small percent of the money is held back and used to pick out a toy as an immediate reward for saving.
- Drop a Hint about Investing – I introduce simple ideas about investing and why it is important to eventually transition money from the bank to investments. Understanding investing in terms of owning part of a company and getting paid when people buy things from that company is as complex as you should be at this age.