Piggy bank or bank account: Tips for helping your child save

Oct 1, 2012 at 4:36 a.m. ET

Teaching your children about saving money while they're young is a valuable lesson that can help lay the foundation for a solid financial future.

boy putting money in piggy bank

Start when they are young

From the time kids are toddlers, they can start learning about saving money. Give them a piggy bank or a change sorter and talk to them about the different denominations of coins. Discuss how money is earned from work. Even though they won't understand advanced money concepts — such as interest — until they are much older, it's important to make money discussions part of their everyday lives. Talk about how we first must pay for our basic needs (food, shelter, clothing, etc.) and then set aside money for savings, instead of frivolously spending on all our wants and desires.

Set up a bank account

Take your child with you to the bank on a regular basis so that she becomes familiar with it. Talk about what you are doing as you complete your transactions. Once she has outgrown her piggy bank (whether that's when she is 2 or 10), open a joint savings account with your child.

Encourage your child to work

From newspaper routes to babysitting to tutoring, encourage your kids to work. You want them to develop a strong worth ethic, plus it's important for them to earn (and save) their own money from a young age.

Put aside part of his allowance

Instead of just giving your child a weekly allowance to spend on whatever he wishes, make it a household rule that a portion of each child's allowance must go into the savings account.

Save as a family

Sit down as a family and talk about your budget. You don't have to hand over your checkbook to your kids to look at all the details. However, they should be aware of your financial situation. Talk about your family's financial goals. Do you want to buy a new TV? Add a game room to your home? Save up for a trip to Hawaii next summer? Involve your kids in setting goals, budgeting and saving for your future.

The three-envelope method

There will come a point when your teens need to start paying for a portion of their own expenses. To do that, you need to provide them with the financial know-how and skills they need to become more independent.

"We need to have a curriculum in schools, from kindergarten through 12th grade, that ensures our kids graduate with financial literacy," says financial expert Mark Hansen, author of Success 101 for Teens. "From balancing a checkbook to understanding what it means to pay — and earn — interest, kids need basic money management skills to survive in the world, and most aren’t getting them."

Unfortunately, schools aren't talking about financial literacy as much as we'd like, and it's up to the parents to teach most of the lessons at home. Hansen says you can teach your teens about controlling their financial destinies by helping them create a budget, teaching them to understand interest rates and using the three-envelope method for savings. Once your teens are earning money on their own, have them try this approach:

  • Use the first envelope for day-to-day expenses: gas or lunch money.
  • Pause before blowing this money at the movie theater or a fast-food restaurant!
  • Use the second envelope for short-term goals, which might be clothing or a new laptop.
  • The third envelope is for long-term goals, such as a car, college or a "future millionaire club" fund.

By starting early with your children and establishing good money habits now, you can help them become hard-working, financially secure adults.

Quick tip

Your children won't be encouraged to save if they see you spending your money recklessly or charging up your credit cards. Set a good example for your kids by making smart money decisions of your own.

More about family finances

Mom vs. Dad: The allowance debate
Talking to kids about financial struggles
Teaching your kids about money and debt

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