One of the best things that we can teach our kids to help them have a financially healthy future is how to save. Learning "money smart" skills at a young age can help prevent kids from making the same financial mistakes that many of us have made.
For example, if we had known then, what we know now, many of us wouldn't have so much debt (the average American has a total debt, not including mortgage, of $93K). We'd also be better prepared to fund an emergency (69% of Americans have less than $1,000 in savings). And, we'd also have more saved for retirement (42% of Americans have less than $10,000 saved for retirement).
Teaching Kids about Budgeting, Saving, and Compound Interest.
Teaching kids the importance of saving and ways to save can help instill good life-long money spending habits.
Budgeting and saving money are the most important aspects of having a secure financial foundation. There are many ways to teach this, depending on the age of your child or teen. Giving your child opportunities to earn money through chores so they can begin to manage their own money is a great first step. Then, with a piggy bank or savings jar, they can watch their money accumulate. Another great way is to open a youth savings account at the credit union. By linking your primary savings or checking account to theirs, you can conveniently transfer money into their account. A savings account provides kids with a safe place to save their money, allowing them to learn additional banking skills.
One of the most critical considerations of saving is time. The longer money gets saved, the more likely it will grow, especially when there's interest.
One fun way to demonstrate the power of saving and compound interest is to ask, “Would you rather have $10,000 or a penny a day, doubled for 31 days?”
Starting with one penny, doubled for a month of 31 days, totals over $10 Million!
Of course, no investment doubles daily, but this can be a great way to explain the difference between simple interest and compound interest. The saver earns interest on interest with compound interest, whereas, with simple interest, the saver earns interest on the principal. Savings accounts, money market accounts, and Share Certificates all pay compound interest.
Teach Kids About Debt.
Kids should be encouraged to live within their means. It's important to explain that while interest can help savings grow, it can also cause debt to accumulate.
One of the best ways to help kids become financially healthy is to lead by example. Be honest about the mistakes that you’ve made and use your own experiences as teaching opportunities to help coach your child to be financially smart.