Monday, June 2, 2008

Teaching Kids to Save

Many times, parents forget to teach kids important skills that they will need when they leave home. We are great for making sure that they know all the things they will need to know while they are still living at home - how to respect those in authority over them, how to tie their shoes, how to communicate effectively with peers - but in many cases, kids are never taught how to save money. This does not have to be boring. You know what your kids enjoy, so be creative and make it fun! Here are a few suggestions to get you started.

As soon as kids start earning money, they should start saving some. One way to do that is to set aside a certain amount. In my son's case, I decided how much he would save because he is still pretty young, but if your child is old enough to make an educated choice, let him decide for himself. The more choices you let you child make, the more he will enjoy the process.

When they have enough money to open up a bank account, teach them a few terms that they will need to know to pick out a bank and bank account. I will talk even more about that in next weeks' posts. Let you child do the work when she goes in to make deposits. When she can write well, let her fill out her deposit slips and talk to the teller. Make sure she knows that she is responsible for knowing how much is in her account and reconciling the statements. There may not be a way to make that part fun, but reconciling bank statements is just one of those things that everyone needs to do.

If you have the space, set up a "writing center" in your child's room where he can crunch numbers. One of the most fun aspects of saving money is watching it grow, especially when you factor in interest - extra money that he didn't even have to earn that he gets to add into his savings.

If she is old enough, let your child decide what the money will be for. I encourage you to make sure that it is for something worthwhile, not a toy that she will tire of in a month. I told my son that I he can decide what to use his savings for, but it has to be a major purchase - college, a down payment on his first house, his first car, etc. Money for toys has to come from his toy budget, even when he has to save up. In fact, I intentionally chose to pay him small amounts so that he would have to save his toy money.

I know it sounds dull and uninteresting to talk about from a kid's perspective, but something about earning your own money and watching it grow just grabs their attention and excites them. One day, they will be incredibly grateful that you took the time to teach them these important skills so that they can be intelligent and responsible in their financial decisions as adults.

Sunday, June 1, 2008

Why Save?

For many people, saving is something that you do at the end of the month with whatever money is left over. Some people can still save like that, but for most, this line of thinking leads to living month-to-month without a back-up plan. It is imperative that you pay yourself first. Saving is not optional. If you struggle to see the merits of saving, or struggle just to get that money into the bank and keep it there, you are not alone. But through good monetary strategies, you can overcome those obstacles. First, we are going to go over some reasons to save.

Save for emergencies. Life happens. Someone in your family may need medical attention. Your car could break down. Your home could be robbed. There is no guaruntee in life that bad things won't happen. If anything, there is a guarantee that bad things will happen. It is your responsibility to your family to be prepared for these things. Unexpectedly having to buy a new car should not mean that you suddenly can't pay your house payments. You should have three to six months worth the expenses saved up in an emergency fund at all times. At the very least, you would be able to buy an ugly car that gets you from point A to point B without missing a beat. When you use money from your emergency fund, you are, of course, responsible for saving to put it back.

Save for retirement. For some of us, this can be difficult to think about now. When we are in our twenties and thirties, we don't think about preparing for life after 55. But the reality is that as soon as we start working, we should be socking money away, preparing for the big day. I haven't even started what I would consider my career yet. I am twenty-three years old. My income is considered under the poverty line. I have a retirement account that I put $25 into every month. You can do this!

Save for all of your wants. Your "wants" may include a newer car, college educations for your children, a family pet, new clothes, or a bigger house. These are all things that you need to set aside money for. They are certainly not impulsive buys. If it is a purchase that requires thought and shopping around, then it is something you should set aside money for. Decide how much you want to spend on it, and start setting aside a certain amount every month.

The best way to start saving more money is to start to track your spending. You will be surprised at what you are spending your money on. When I started doing this, I thought that I was spending $150 per month on groceries. I soon found out that it was more like $250 or $300. Eating out is a big expense that creeps up on us. By the time we get our food and drinks and tip the server, you can spend $20 per person in a reasonably priced restaurant. Once you know what you are spending your money on, you can better control it.