Bush: How to teach kids to save

We all know that money doesn't grow on trees, but kids often have the impression that Mom and Dad are limitless fountains of cash. Marci Heathmon, a youth financial education assistant with University of Tennessee Extension, says it's important for parents to break that mindset and to teach to their children the value of saving money.

"Saving is a mindset that comes with maturity and practice, but parents can take steps to help their children develop a saving mindset and prevent the rolling eyes, sighs, puffs and that general glazed over look when you talk to your kids about money," says Heathmon.
Here are three steps Heathmon says will help parents:

1. Start early to identify wants and needs. Next time your child approaches you with a "need" consider presenting him or her with the following questions: "Does it feed you, cloth you, house you, or transport you to a job? If not, are we going to buy it anyway?" If you are teaching your child to have a saving mindset, wants and needs should be identified correctly so there is no confusion.

2. Practice money awareness. Children are very impulsive consumers. Giving a child an allowance can short circuit their strategy of talking an adult into buying an impulse purchase. Allowances help kids learn the money stream has an end and that it really doesn't "grow on trees." Consider this conversation: Johnny: "Mom, I want that cool new electronic sports game." Mom: "Do you have the money to pay for it?" Johnny: "Yes." Mom: "Well, then, it is your decision." At this point your child may pause. The thought of depleting allowance funds always hits kids a bit hard. Children are much less impulsive with their own money.
Heathmon reminds parents to set up ground rules in regard to allowances. One, don't bail your child out. If your child runs out of money and something else comes up, let him wait until he has enough money. Two, don't loan your child money unless you are going to charge interest. Three, don't give your child an allowance and constantly pay for everything anyway. That doesn't mean you won't buy anything for your children, but anything you pay for is a gift and gifts don't happen every day.

3. Incentivize saving with matching funds. Once your child has identified "wants" and has practiced making decisions to manage his or her supply of money, your child has to learn to actually save money and put it away untouched for a period of time. Parents can encourage saving habits by offering incentives or rewards. Try matching funds for costly items so they don't get discouraged and will reach a goal a little faster. For example, match every $10 saved with an additional $5. "You can match as little or as much as you like," says Heathmon. "The point is to reward the behavior you want to see."

There are some ground rules here, too. One, don't match everything! Some things are reachable within a typical allowance. Two, make sure you require your child to stretch and struggle a little…just not enough to become discouraged. Another option is to supplement the allowance with money you would spend anyway. For example, set an amount to spend on a specific outing or event and let the child keep any funds he or she chooses not to spend.

Heathmon says tired and cliché phrases like "a penny saved is a penny earned" may still invite rolling eyes, sighs and puffs, but she encourages parents that understanding will lurk behind those gestures. "Identifying wants, controlling impulses by practicing money awareness and learning to save all encourage the saving mindset we so desperately want to teach our children. With patience, encouragement, and persistence, we can teach our children to make good money decisions and develop financial skills which will last a lifetime," she said.

UT Extension provides a gateway to the University of Tennessee as the outreach unit of the Institute of Agriculture. With an office in every Tennessee county, UT Extension delivers educational programs and research-based information to citizens throughout the state. In cooperation with Tennessee State University, UT Extension works with farmers, families, youth and communities to improve lives by addressing problems and issues at the local, state and national levels.