Why kids don’t save money and what to do about it

Every parent knows that if you give a kid a dollar, they’ll promptly run out and spend it. When the money slips out of a birthday card, it isn’t as surprising since it’s intended as a gift or present anyway.

But in the long run, how do we get our kids to become fiscally successful and build up their savings mentality, so they are prepared for their future? When, really, should we start talking to our kids about money? Research shows that the answer is now. “By age 3, your kids can grasp basic money concepts. By age 7, many of their money habits are already set.”

Kids (and adults!) who don’t think about the future won’t bother to plan ahead. To them, money earned should be money spent. If I said that a meteor was on course to obliterate Earth in a month, there would undoubtedly be a change in the approach to saving versus spending.

But, so far as we know, that’s not happening any time soon. So, how do you get kids to start planning ahead and saving a percentage of their allowance or earnings for their future?

Years ago when interest rates were high, you could incentivize saving by pointing out that $20 saved could turn into $22, $25, or even $30 to spend later. The magic of compound interest! But with most savings accounts' APY and interest rates, it’s darn hard to get enthused when your balance might grow a handful of pennies or so in a year.

One way I’ve helped teach my children the benefit of saving is to enforce a rule: They can’t purchase big-ticket items until they’ve saved the full cost. Got a kid who’s dying for a fancy skateboard, the latest Nintendo Switch game, or a trendy pair of boots? I’ve had very good luck with cost and savings charts. It’s a tangible progress meter that’s similar to how schools convey progress towards a fundraising goal.

For example, let’s say my son wanted Pokemon Sword and Shield for his Nintendo Switch and earned a $10/week allowance. The game is $50, so that’s 5 x allowance. To show that visually, I’d create a chart with five empty boxes and a picture of the Pokemon game at the end. Every time they opt to save their allowance instead of spending it, a box gets filled in. Once it’s full up, they’ve earned the game and learned a valuable life lesson too.

This can also be done with more inexpensive items, and the currency doesn’t even have to be money. We went through a phase with my daughter where she refused to go to bed, so I created a “stuffie stars” chart (parents everywhere: I see you).  Every night that bedtime was easy she’d earn a star towards the chart, and every 14 stars she earned a little stuffed animal that we’d go purchase at the local toy store. She would check that chart many times a day to see how she was doing. Needless to say, the bedtime problem was put to rest.

Another way you can incentivize your children’s savings is to match their funds. If they put a dollar toward savings instead of spending it, you could add a dollar, doubling their savings. This can be a bit tricky with older kids, as they will most likely realize that if they defer spending for just a week or two, they’ll have doubled their allowance.

To remedy that problem, consider agreeing on a big purchase, like a bicycle or a pair of racing skis. If they can save up a percentage of the item cost, you then cover the difference. A $500 bicycle might involve them saving $300, for example, at which point you contribute the difference.

This also has an added benefit: They now have “skin in the game.” If they had to skip impulse buys, candy, movies, toys, etc. to save up for something more substantial, they’ll take better care of it and be far less likely to lose it. They had to work to get it, after all!

Philanthropy comes from empathy and caring about others. Most children are born with a sense of empathy, but it’s an important trait to foster, particularly in our world that often seems far too focused on consumerism and acquisition of the latest and greatest. Whether your child wants to support animals, the rainforest, less privileged kids, or another cause, they’ll grow up to be more compassionate by learning to give while in their childhood.

Some parenting experts encourage a rule of thirds in this regard: 1/3 of their allowance and earnings toward savings, 1/3 toward charitable giving, and 1/3 available for spending money. This is worthwhile, but 33% towards charity might be too high for many families.  Remember though, even 10% toward charity can impart the lesson to be a participant in the community and the world. It’s an excellent counterpoint to the inevitable self-absorption of most children as they go through adolescence too.

One of the toughest parts about parenting is realizing that what you say is far less important than what you do. Kids are always watching, learning, and mimicking the behaviors they see in their parents and adults around them. If you never put a dollar toward savings, you can’t be bothered with charity, or if you spend every paycheck on entertainment and expensive hobbies — those habits are going to send a clear message to your children.

Instead, now’s the time to show them that Ben Franklin was right when he opined that “a penny saved is a penny earned.” Get involved in charitable organizations and get the family involved, too. Talk about what groups you support and why, ask your children what concerns them and who they’d like to help out, and encourage them to do so.

You’ll be raising financially savvy youngsters who will be ready to manage the complex world of adulthood. They’ll be able to save up for a new car, a down payment on their first house, a wedding ring (someday!), and even donate to charities along the way. And we can all agree that communities need more children like that.

Dave Taylor is a freelance writer and the founder of Go Fatherhood, an advice blog dedicated to providing valuable tips from a fatherly perspective. He is an activist in the single parent space, giving talks on how to be the best role model and help guide teens through important life transitions for a brighter future.