How can you encourage your kids to be good savers? Once again, it starts with being a good financial role model and adopting healthy financial habits. One of the best habits you can adopt and model for your kids is to “pay yourself first”. Make savings a priority by paying yourself before paying a cent to anyone else. If for example, your savings goal is retirement, putting those funds into a Registered Retirement Savings Plan (RRSP) means you get paid even before the government does – since RRSP contributions are made with pre-tax dollars
This strategy involves automatically setting aside money every time you get paid and putting those funds into a separate savings or investment account. By setting up an automatic transfer, you don’t have to rely on self-discipline to ensure you have funds left to save at the end of the month. Instead, you get used to living without this money.
This is a habit your kids can get into at a young age. You can set up 4 simple jars labeled save, spend, donate and invest (or buy a multi-slotted piggy bank) and encourage your children to put money in the savings jar before allocating the remaining money to the other categories. Older kids with jobs can do as you do – set up a separate savings account to automatically receive a percentage of their pay cheques. The money habits that kids form in these years can be the foundation for how they relate to money when they’re much older, so make them good ones.
Your children are more likely to want to save if they have a specific, realistic goal in mind –and one that is important to them. Setting goals and working towards achieving them teaches kids delayed gratification – the ability to wait for a reward – and counters any attitude of entitlement they may have picked up.
If your kids need a little extra push to motivate them to save toward a specific goal, offer to match their savings dollar for dollar. If your pre-teen wants to buy the latest $60 video game, help them come up with a plan to save the first $30 (from their allowance or from doing odd jobs around the house or for neighbours), and then match it.
When your child is ready to part with his piggy bank, it’s time to open a youth account at the bank. Youth accounts are special accounts designed for young savers, with very low or no fees and also low interest rates. Use this “teachable moment” to discuss the concept of interest, that the bank is paying them to safeguard their savings. You may also want to explain that when you borrow money, the bank charges you interest.
As your child grows and matures, the ways in which they can save become more sophisticated. Talk to them about purchasing a Guaranteed Investment Certificate (GIC). A GIC will pay a higher rate of interest than a savings account and will help them reach their goals faster, but the money will be tied up. The longer the term of the GIC, the longer their money is locked in and the more interest they will earn. The fact that a GIC cannot normally be cashed in before it matures reinforces the concept of delayed gratification.
With money in the bank, your kids may be ready to spend some of it. The next post will talk about how to help your kids spend wisely.
What tips and tricks do you use to encourage your kids to save?