Spending and Saving: Help Your Kids Find the Right Balance

There are likely few people who can say they haven’t heard their parent tell them at some point that “money doesn’t grow on trees.” Among the most valuable things we can teach our children is that cash is a limited resource and that they must save for what they want. If spending comes more naturally to your kids than saving, here are some tips for helping them find the right balance.

Set guidelines for allowance. Once your children are old enough to understand the concept of earning money, you can begin guiding them about how to manage it. One way to do this is to help them determine what percentage of their allowance will be used for spending, saving and perhaps giving. Keep in mind that until kids have some money to work with, it’s hard to help them make wise decisions about spending and saving, so consider paying your child small amounts of allowance at an early age.

Locate a safe place to keep savings. It’s a good idea to keep savings and spending money in separate, labeled containers. If your child has identified a tangible goal for the savings portion, suggest that he or she find a picture of the savings goal and attach it to that container, so it remains very visible. Your child will also learn that money should be kept in a secure place where it won’t be misplaced.

Match your kids’ savings. You can offer extra incentive to save by making a matching contribution for every dollar your child saves. When kids are young, a 100 percent match may be reasonable, but as they get older reducing the amount to 50 percent or even 25 percent may still encourage them to save.

Discourage spur-of-the-moment spending. We’ve all had our savings goals derailed by impulsive purchases that we just can’t resist. Your kids can avoid getting off course with their savings plans with these nuggets of wisdom:

• Leave savings behind. Bringing only spending money on a shopping trip or weekend trip will keep them from tapping savings for unnecessary purchases.
• Avoid rush purchases. If you want to make a large purchase, wait for a couple of weeks. After that time, if it’s still a priority, then it may be worthwhile.
• Discuss spending plans. Decide well in advance of a shopping trip what your next purchase will be, and stick to it.

Set a good example. Over the past few decades, many Americans have struggled with serving as good savings role models for our kids. The U.S. Department of Commerce: Bureau of Economic Analysis reports that the personal savings rate in the U.S. currently hovers around 3.5 percent -- down from rates over 12 percent in the early 1980s.1 Raising the bar with our own disciplined savings habits will transfer to our kids naturally over time. 

Make saving a family affair.  By keeping your kids in the loop as your conduct your savings transactions, they will become familiar and comfortable with banking and how the financial system works. Discuss your own savings goals with your kids so they can share your joy when you’ve accomplished a milestone with your money. As with anything else in life, kids will learn that determination and patience are rewarded, and the payoff for reaching a goal is worth the challenge of getting there.

Jeff Mushen, MSF, CFP, ChFC, is a Financial Advisor and CERTIFIED FINANCIAL PLANNER practitioner ™ with Ameriprise Financial Services, Inc. in Edmonds, WA. He specializes in fee-based financial planning and asset management strategies and has been in practice for six years. To contact him, go to his website at www.ameripriseadvisors.com/jeffrey.m.mushen.

1Personal Income and Outlays Report, updated June 1, 2012

Advisor is licensed/registered to do business with U.S. residents only in the states of Alaska, Illinois, Oregon, and Washington. 

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