When you begin to teach your children how to save, there are some very simple steps to keep in mind at all times. There are five ways to give a child early lessons in saving money that may also lead to financial responsibility as an adult.

 1  Start Early

You can begin teaching your children when they are as young as toddlers. Young children think in very concrete terms. While they may think that a nickel is worth more than a dime because it is larger, they still know that change has value.

Begin teaching them the value of money by using a piggy bank. Piggy banks come in all shapes and sizes; find one that will interest your toddler or pre-school age child and give them hands on experience. If you use an ATM (automatic teller machine), you might also mention to them that your ATM is similar to their piggy bank, in that you must put money in the bank before you can take money out in the ATM.

Have them find a toy that they really want, then help them to save for that toy by using their piggy bank. Remember that children of this age do not have a long attention span, so do not let them set up a goal that requires too much time in which to save. Also, tape a picture of the toy to the piggy bank so that the child does not forget his goal.

Another way to reinforce early saving is to find books on this subject geared to this age group. One book that might aid in the idea is It’s a Habit, Sammy Rabbit! It also comes with a companion CD, available at www.itsahabit.com . Throughout this entire experience, always remember to keep it fun! Do not make saving a chore.

 2  Keep it Simple

When you begin your talk to children, keep it age-appropriate. Do not attempt to describe a Roth IRA when all they want to know is why they cannot have a particular toy. Instead, explain that it is not in the budget this week.

 3  Use an Allowance Wisely

By the time they begin school, children understand money to a greater degree. They understand how money has buying power. Older children can also think further into the future. These attributes make elementary and middle school ages an appropriate time to introduce an allowance.

An allowance opens the door to lessons in using money wisely. Introduce the use of money for different things like spending, saving, investing, and giving. These ideas learned at an early age can give children a sense of empowerment. Kids will also become more comfortable with making wise money choices when they are older.

An allowance also provides the opportunity to match their savings. This could be a method of teaching them about a 401(k)—early lessons on saving for retirement. Once your children have achieved their goal, allow them to spend some of the money. By reaping the rewards, they establish a goal that keeps the fun in the saving.

 4  Teach Financial Responsibility

The teen years bring hormonal changes and increased pressure to buy. Thus, teen years can be the most frustrating time of teaching your children about saving. Peer pressure and the need to impress during these years seem to override intelligent, rational thinking. Teens readily admit that they will overspend in order to impress someone during this time in their life. Therefore, it is best to add the responsibility in small increments.

Your teens may already get an allowance. Now is time to increase what they must buy out of this allowance. Make them responsible for paying for things like birthday gifts, concerts, gasoline, other car expenses, their own clothing, holiday gifts, and dates. When a teen must pay for these items themselves, it creates a natural incentive to save.

 5  Offer Other Reasons and Ways to Save

Give your teens a goal. Also, match what they save if the item is expensive, like a used car or brand new phone. If they work, encourage the teen to direct deposit a percentage of the paycheck into a savings account. Explain how the savings will pile up easily because the money is redirected before it hits the main checking account.

Begin introducing them to other ways to use that savings, like stocks. Web sites like www.MyStockDirect.com are great places for teens to learn about stocks. This Web site has over 100 companies that sell stocks directly to the public.

Teaching your child about savings throughout their development can create an adult who is savvy about spending and saving. Such lessons also spill over into other areas like character building and maturity—also areas that child needs to become a responsible adult. Throughout the lessons, remember to keep it fun and the children will be eager to learn.

Additional Resources:

Find out more about teaching kids to save at: www.kiplinger.com/columns/drt/archive/2008/dt080528.html