How to Teach Your Child About Why We Save

13. May 2011

Why do we save? Explain to your children that we save in order to get things that we will want in the future, but also to get things that we will need in the future. It’s hard to think about the future when you’re young because to most children their idea of “the future” is next week, tomorrow, or even five minutes from now. So, does a three year-old understand the concept of long-term saving? Absolutely, positively not. Or does a ten year-old understand the concept of saving? Absolutely, positively not. As a result, most adults in America don’t understand the concept of saving either. We have a very low success rate of saving in this country.

The key is to make saving a habit. I start these lessons when children are as young as three years-old. Habits start as rules. In my Allowance System for children, it’s a rule that they save some of their money long-term. But they also have to decide, with your help, what they are saving for. I always like to suggest that they save for college.

Any good savings plan begins with setting goals. Talk to your children about what some of their longer term goals could be. They’ll probably want a house, a car and other large items. Explain that unless you think about these expensive items when you are younger, you probably won’t have the money to obtain them later on.

Explain that a goal should be realistic and attainable. If you know that you and your children will never be able to save enough for a private college, don’t set that as a goal. Set a goal for a state school while acknowledging the possibility that your child could get a scholarship to a private university.

Also, explain that it’s not important now for them to lay out their entire life, it’s just important to set aside money each month. Financial planners recommend putting aside 10-15% of one’s net pay for savings. Click here for a better idea how much to put aside based on your own financial situation. The point is to create this habit of saving while the children are young and “pay yourself first.” That means putting your own money aside each time you receive it for your savings goals. Explain what college costs are today and what they could be when they are actually ready to go. Explain what your house cost when you bought it and what it would probably cost to buy it today. They need to understand real budgets, real money issues, and what it will take to save for real goals.

The next step is to find the appropriate investment for college savings. Together you can visit Sallie Mae’s web site and explore savings options. There is also an interest rate calculator on which will show them “The Miracle of Compounding” and teach the benefits of starting to save when they are young.

Saving will become a lifelong, healthy habit…I promise!

This month's e-Wealth Coach author is Neale S. Godfrey, financial guru and former bank president, is an acknowledged expert on family finance. She is the author of 17 books that deal with money, life skills, and value issues, including her #1 New York Times Best Seller, Money Doesn’t Grow on Trees: A Parent’s Guide to Raising Financially Responsible Children and her latest book, LIFE, INC: The Ultimate Career Guide for Young People. Visit Neale’s website at

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