Learning to save money is just as important as learning to spend money wisely. Teach children to save some of the money they receive from allowances, chores, gifts, or work. You might, for example, have them put some of their money into savings and donate some to charity, then allow them to spend the rest.

Very young children can save money in a piggy bank, but as soon as children are old enough, take them to the bank to set up a savings account. Not every financial institution is kid-friendly; don’t automatically head to your regular bank. Ask a bank representative the following questions:

• Does your bank prepare information targeted to the youth audience?
• Are there lower minimum deposits for children?
• Are fees waived for children?
• How often is interest paid to the account?

Interest payments are an important benefit of a savings program. Teach your child that the money saved is busy earning interest. For very young children, use two containers and a little change to teach them about interest. Mark one container “S” for savings and the other “I” for interest. When a child puts a quarter in one jar (the savings jar), you put a nickel in the other jar (the interest jar). While this is a generous 20 percent rate of return, young children will probably miss the exaggeration. They will understand, however, that money can work for them, and they’ll be inspired to participate in a savings program. For older children, you can use real-world examples. For example, as deposits are made into a savings account, show your child how interest is being earned not only on the deposits — the principal — but also on the interest previously earned.

Setting Goals
Saving for long-term goals is a money management lesson older children are ready to learn. Start with the fun part: listing your child’s personal financial goals. You can make the list on a blank sheet, or you and your child can use the Top Priorities Checklist on this page as a start toward identifying your child’s most important financial goals.

After discussing your child’s general priorities, work with him or her to develop a list of specific needs. This is a good time to introduce the idea that saving is a way to get what you want or need. Explain the difference between planned saving for a short-term goal (e.g., new tennis shoes, birthday gift for Dad), and regular saving for long-term goals (e.g., college), or for unknown items and emergencies.

Help your child establish his or her own financial goals and a budget to help meet those goals. The purpose of this exercise is to demonstrate the need to save for future goals. Once your child has identified clear goals, it’s time to set up a budget for meeting the goals. Use this Personal Budget as a worksheet.

Ideally, you want the difference between income and expenses to be a positive figure representing (as yet) unbudgeted money. It’s more likely, however, that your child will list so many things that his or her income won’t come close to paying for it all. If that happens, and the bottom line is a negative figure, it is a good time to start talking about the concept of trade-offs and the importance of living within one’s income. Help your child decide which expenses to postpone or eliminate in order to have money for higher priorities. For example, your child may decide to wait on a music purchase to have money for a special outfit, or to spend less on snacks to afford a new video game.