Kid's Speak RE: Savings

[Earthmerlin]

Hi. I'd like some ideas on explaining to a 7 yr old why she should NOT spend money from her savings account. She gets an allowance but at times wants to withdraw additional funds from her savings. So I have devised a system for that--a maximum of $20 quarterly. I think she's developed a case of the 'gimmes', to be honest (& we're working on that too). However, how do you explain the value of saving (& building wealth) to a kid who's got no bills or real financial responsiblities? 'It's good to have a cushion' or 'For a rainy day' isn't too pertinent or convincing her much. 'What's the sense of having money if you can't spend if?' is her response. I need the kiddie words & perspective that'll hit home & help her understand our family money values. Ideas?

[Rosie_0801]

Um, well, my dd is saving money so she can start another business, so she can use the profits to buy shares, so she can have passive income, so she can afford to homeschool her ten children.

 

For an answer that applies more globally, try the Cashflow for Kids board game and that story about the king who had to pay someone exponential amounts of rice. Someone will know what that's called. 

[Monica_in_Switzerland]

Does she get to decide how much goes into her savings, or do you divide an allowance between spending money and savings?  

 

I think a rainy day or an emergency are way to vague for a kid to understand.  Another issue is that what she considers a valid "rainy day" item, you apparently do not.  This will make it really hard for her to understand why savings exist.  

 

I would maybe sub-divide the savings into several categories- short term savings for buying bigger ticket items that are entirely at her discretion (within whatever toy rules framework you have in your house), medium-term savings for known events that require money (vacation spending, gift buying at holidays, etc.), and long-term savings for nest egg.  For the nest egg, I'd encourage her to help you create a list of all the things young adults need to start their lives- kitchen goods, possibly a car, work wardrobe... etc.  You can choose whether or not she needs to save for her own schooling... that seems more like something you would do FOR her though, but maybe let her see how the account is growing over time.  

[IsabelC]

I wish there were a perfect answer. But I suspect our main choices are to either let the kid have complete freedom (and try not to be overtly disapproving when they don't make the same choices we would), or make them do what we'd prefer (either by advising them, or by actually keeping some of their money where they can't get it).

We used to give the children pocket money at first, but we found that getting money for nothing meant that they didn't really value it much.  We considered instituting payment for chores, but rejected that idea because we felt that they should do their chores without being paid.  We wound up with our current system, which is that if they want money they have to earn it.  They can earn money by their own methods, or they can earn money from us, by doing extra jobs (which can only be done in their free time, ie after they have done everything they are supposed to have done).  

The kids have gone different ways with this:

Mr. 14 doesn't earn much but virtually never spends anything. He says there isn't anything he needs, as we provide all the essentials for him, and is totally oblivious to things like fads, fashions, etc.
Ms. 12 doesn't earn much and spends everything she has almost instantly. She has told me she hopes to find a wealthy partner when she grows up!!
Ms. 8 works hard, spends a bit, but saves a lot. She has much more saved than her siblings, is super organised about what she spends, saves, and donates to her favourite cause, and is already well on the way to being a financially responsible adult. 

It's possible that your Ms. 7 simply doesn't have the requisite capacity for majorly delayed gratification yet. If this is the case, it might help to start her off with small savings goals. So instead of saving 'just in case' or saving 'for a rainy day', you could encourage her to find something she would really like to buy, then make a plan that if she can save half the cost, you'll match it and she can have her Exciting Thing. When she succeeds with this, you could help her pick out a bigger, longer-term goal.  Hopefully this would teach her that money saved is money you can use later, not money that disappears forever. And when she's a older, then she can think about really long term things (house deposit? Retirement savings? lol)

Edited August 7, 2017 by IsabelC

[fralala]

I'm not really sure you can explain this to a 7 year old with words and make it hit home. And it's not really about her being 7, either-- clearly, many adults have trouble saving money and delaying purchases. Some of them might even be on this site and have a browser window open to Amazon as they go through various curriculum posts. (Or is it just me? Thank goodness for Wish Lists...not a bad technique for kids, either.)

 

I personally particularly have this problem when I am given an "allowance", or rather, I find it a lot easier to spend money someone else earned. This has been an ongoing problem since I gave up my job, and it is the reason I personally do not give my kids an allowance. Their savings accounts-- I'm sorry, kids-- are not their savings accounts, they're MY savings accounts for their education-related expenses when they're older. I managed to save lots of money on my very meager salary back when I was working a job I absolutely despised. There is nothing like putting a task to a dollar amount to make a desired item suddenly seem less worthwhile.

 

So, despite my personal limitations, I guess I do try to serve as a role model to my kids. When I want something but decide we can't afford it, I talk about it with them. We try to have money conversations in front of them. They see me checking my credit card statement. We talk about the cost of things. I remember going into the grocery store with my own mom and watching her mentally estimate the cost of everything because she only had $40 to spend for the week-- even though we're more fortunate than I was growing up, I find it valuable to set an amount we are going to spend before shopping and sticking to it (also good for mental math).

 

And when we have crises-- like extensive water damage and a roof that needs repairing-- that's when we get to talk about savings. Or when we're wondering if we can afford to go on vacation, or send the kids to camp. None of these things are effective in the short term for diminishing my kids' wants, but when I look back over the course of my childhood, they are the things that caused me to be frugal and value saving. But these things are really still lifelong challenges, and we can't avoid the fact that we live in a consumer culture that is going to be sending us and our kids messages that we need more, and should get more, that are pretty darned hard to fight against. (Another thing I talk about with the kids-- my 7 year old especially does like feeling she's too "smart" too fall for the little tricks that are everywhere to get kids to want more, more, more and be unhappy with what they have.)

 

 

[Earthmerlin]

My daughter currently gets $7/week for doing chores. She keeps $5 for pocket money & puts $1 into her savings & $1 as a donation (of her choice). She oftentimes does not spend her pocket money and so accumulates it, which is fine. If something's beyond her liquid cash holdings, she'll usually borrow it from me (which is deducted from the following week's allowance). I like this idea because it teaches her to pay back 'debt'.

 

She's already got college & long-term investment accounts, which I consider parental responsibility. I believe we'll start investing in stocks with her upcoming 8th birthday. That'll be a learning experience as she becomes involved in the process.

 

Overall, I believe the allowance idea has been a positive one. I see her making financial decisions all the time, which was my original intention. I also appreciate the comments about materialism & we are working on it--discussing ads' 'hidden agendas', etc. I know it's a process & I am committed to expanding her knowledge and skills as she develops. Thanks for all the input!

[Arcadia]

If something's beyond her liquid cash holdings, she'll usually borrow it from me (which is deducted from the following week's allowance). I like this idea because it teaches her to pay back 'debt'.

My kids charge loans at similar to pay day loan rates when they lend out money to my husband at that age. So if my husband borrows $2, he has to pay them back $4 the next day. My kids aren't generous enough to do interest free loans to their sibling and parents.

 

My kids have wish lists from an early age so that has helped.

[goldenecho]

One Grain of Rice is the story you were thinking of.  My son loved it.

 

Um, well, my dd is saving money so she can start another business, so she can use the profits to buy shares, so she can have passive income, so she can afford to homeschool her ten children.

 

For an answer that applies more globally, try the Cashflow for Kids board game and that story about the king who had to pay someone exponential amounts of rice. Someone will know what that's called. 

 

[goldenecho]

My kids all started saving money after one of their brothers put away all his birthday and tooth fairy money and money he had gotten for doing extra chores (since I don't give allowance) and bought himself a video game system (took him like a year, but after he had the device everyone was on the saving bandwagon).

 

They aren't going to understand "rainy day" savings now, but they do understand saving for something big they want.  You might offer something like "if you will save up for it than I will take you to an amusement park" or the next time she pines over a big toy, tell her you're not going to get it for her, but she's welcome to save her allowance for it.  

 

 

 

 

Edited August 6, 2017 by goldenecho

[mommyoffive]

Um, well, my dd is saving money so she can start another business, so she can use the profits to buy shares, so she can have passive income, so she can afford to homeschool her ten children.

 

For an answer that applies more globally, try the Cashflow for Kids board game and that story about the king who had to pay someone exponential amounts of rice. Someone will know what that's called. 

 

 

Wow.  How old is your dd? 

[Kiara.I]

Require a certain percentage saved. I wouldn't spend a ton of effort on explaining it at this point, it doesn't sound like she cares much. Just require it. Put it in a separate category, called "invest" and then savings can be short-term savings for bigger items she wants.

 

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[Earthmerlin]

Require a certain percentage saved. I wouldn't spend a ton of effort on explaining it at this point, it doesn't sound like she cares much. Just require it. Put it in a separate category, called "invest" and then savings can be short-term savings for bigger items she wants.

 

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I like this idea of separating the savings--untouchable (for now) & a fluid fund accessible for 'bigger' allowance purchases. Edited August 12, 2017 by Earthmerlin

[Rosie_0801]

Wow.  How old is your dd? 

 

She's 10 now. Her uncle set her up with her little egg business two Christmases ago.

 

Buying bee hives so she can sell honey was her idea. The shares were her idea, but it came from playing Cashflow for Kids. 

 

 

I'd like 10 grandchildren. :D 

[Earthmerlin]

She's 10 now. Her uncle set her up with her little egg business two Christmases ago.

 

Buying bee hives so she can sell honey was her idea. The shares were her idea, but it came from playing Cashflow for Kids.

 

 

I'd like 10 grandchildren. :D

I like this homegrown business idea & I remember you mentioning it in another related thread. We're toying around with the idea of a coop & may one day dive in and do it. For now (this summer) a lemonade stand is our financial experiment.

 

I'll need to look more closely at that game. We're game board junkies, LOL.

 

I'm also going to research kid-based business ideas....just for my own edification.

[Rosie_0801]

I like this homegrown business idea & I remember you mentioning it in another related thread. We're toying around with the idea of a coop & may one day dive in and do it. For now (this summer) a lemonade stand is our financial experiment.

 

I'll need to look more closely at that game. We're game board junkies, LOL.

 

I'm also going to research kid-based business ideas....just for my own edification.

 

I read about one girl who made a thriving business selling heirloom tomato seedlings. It's very cool the things people come up with.

 

My dd is trying to become a supplier for one of the mums from our old homeschooling groups, if she can work out how to sell to the city where the better prices are. It's amazing what a nice, handwritten letter in one's best cursive can accomplish when you are little and cute, lol.

[Earthmerlin]

I read about one girl who made a thriving business selling heirloom tomato seedlings. It's very cool the things people come up with.

 

My dd is trying to become a supplier for one of the mums from our old homeschooling groups, if she can work out how to sell to the city where the better prices are. It's amazing what a nice, handwritten letter in one's best cursive can accomplish when you are little and cute, lol.

LOVE IT!!!

[mommyoffive]

She's 10 now. Her uncle set her up with her little egg business two Christmases ago.

 

Buying bee hives so she can sell honey was her idea. The shares were her idea, but it came from playing Cashflow for Kids. 

 

 

I'd like 10 grandchildren. :D

 

 

Wow!  I am so impressed with her.   

[Ausmumof3]

The hard thing with explaining it to kids is its not a real situation. As a general rule any genuine emergency is going to be covered by parents. What may work better is setting a goal to save towards a specific holiday or event that they will need money for.

So much of this is personality I think. I have one who saved for a year for a holiday then forgot to take his money! I have one who spends everything but also earns quite a bit because she's very energetic. To be honest I can't say for sure one way is better. My saver has been able to make some big purchases but I don't know if he really has any more pleasure in them than my dd does on her many small ones.

[Earthmerlin]

The hard thing with explaining it to kids is its not a real situation. As a general rule any genuine emergency is going to be covered by parents. What may work better is setting a goal to save towards a specific holiday or event that they will need money for.

So much of this is personality I think. I have one who saved for a year for a holiday then forgot to take his money! I have one who spends everything but also earns quite a bit because she's very energetic. To be honest I can't say for sure one way is better. My saver has been able to make some big purchases but I don't know if he really has any more pleasure in them than my dd does on her many small ones.

Yes, it's a throw of the dice sometimes. I've gotten a lot of good suggestions from this thread & also another on kids' financial literacy & I am still chewing on it all. Open conversations seem necessary in addition to everything else. It's funny how SO much we know as adults, we were either taught by parents or learned through experience.

[kiwik]

I remember saving every week from when I was 5 to 15. The money I ended up with was so little it hardly seemed worth it. My kids have accounts with a fair amount of money that I and my mother put in. But those accounts are not theirs until they are adults. I have explained what they are for - university or apprentice fees, tools for an apprenticeship, expenses from studying, a reliable car etc but I will need to let go when the time comes.

[MotherGoose]

I tell them they are saving for their first car. (Or college, or whatever). My parents made me save, but it was for something nebulous so I wasn't very invested.

[MotherGoose]

I tell them they are saving for their first car. (Or college, or whatever). My parents made me save, but it was for something nebulous so I wasn't very invested. And I think it's okay to have different savings for different things: like I want to save to buy myself an American girl doll, so I need x dollars and I will use y percent of my earnings towards that. Then mom says I have to put p percent of my savings toward this other thing, say, a car, so I will put q percent towards that. I do think kids need to have savings goals. Right now my eleven year old wants to earn money to buy Christmas presents. (don't y'all Iike how I sort of put my rusty algebra skills to good use??!)

[Ausmumof3]

I remember saving every week from when I was 5 to 15. The money I ended up with was so little it hardly seemed worth it. My kids have accounts with a fair amount of money that I and my mother put in. But those accounts are not theirs until they are adults. I have explained what they are for - university or apprentice fees, tools for an apprenticeship, expenses from studying, a reliable car etc but I will need to let go when the time comes.

I went one better... The bank changed terms and conditions on their kids savings accounts and I ended up with $0 after fees...! Great lesson in saving that was! I think it is useful to remember that cash generally loses value in real terms.

[Earthmerlin]

I went one better... The bank changed terms and conditions on their kids savings accounts and I ended up with $0 after fees...! Great lesson in saving that was! I think it is useful to remember that cash generally loses value in real terms.

Yikes, that's a lesson from the School of Hard Knocks. How institutions can morally do such things to minors is beyond me & squashes the original intention of developing savings habits. I've also thought about her money losing value over time & still have yet to come up with a reasonable solution to that.

Edited August 12, 2017 by Earthmerlin

[Earthmerlin]

It's funny....We just got back from NYC. While there my daughter saw a sign for something & said 'Wow, that's too expensive!' I had to chuckle because she seems to either be parroting a phrase I've said or internalizing some of our recent conversations. I need to proceed with caution on the money chats we have because while I want her to be aware of such things I also don't want to create within her a 'money complex', if you will. I'd like her to be aware but not afraid of money. I want her savvy and confident about it. I want it to enrich her life, not burden it.

Edited August 12, 2017 by Earthmerlin

[Rosie_0801]

Yikes, that's a lesson from the School of Hard Knocks. How institutions can morally do such things to minors is beyond me & squashes the original intention of developing savings habits. I've also thought about her money losing value over time & still have yet to come up with a reasonable solution to that.

 

Compound interest, I think. 

[happypamama]

I usually institute a two week hold on any purchases. If they want something and have to wait two weeks, sometimes they lose interest. Sometimes they don't, and it becomes a prized possession. I do let them buy the occasional junk food with spare change, but I don't bring their gift cards to WalMart, for instance, unless we've decided to make a specific trip for a purchase. That cuts down on impulse buys and also requests of "pleeeeease" in the store.

[purduemeche]

Another option, instead of explicitly teaching about savings, is to expose her to literature about people who do save and live frugally. Benjamin Franklin comes to mind, as does the Little House series. Literature tends to leave a more indelible mark on the heart when teaching virtues.

 

 

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[MerryAtHope]

I'd just say no. That money is for college or a car or another big future purchase.

 

Instead, I'd help her budget the money she has now. Does she get any kind of regular allowance, or can she earn money for doing special chores? Help her set up an envelope system. We had envelopes for spending, tithing, gifts for other, AWANA dues (which later became an envelope for youth group trips), and saving. This way they had money for little gifts when birthdays or Christmas came up, they learned to save a bit of their money, and they learned to decide what items they really wanted to spend their spending money on. If you want it, save for it. My kids eventually did things like make a new envelope to save for a special purchase, and one even hired a sibling to do the chores one week (they wanted to buy something together, and the one had more money saved towards it than the other, LOL!). 

 

It's not too early to teach the idea of a budget, budget constraints, delayed gratification, fiscal responsibility etc... all on kids' terms. And my kids were very proud to earn the money for their own dues. They also sold items at a garage sale and sometimes that money went for certain things too. (One year they earned their own school supply money--their choice! They loved being able to decide on some special items as well as some practical ones, and telling the cashier they earned the money themselves and were paying for it themselves.) My youngest often sells her clothes at a local consignment shop to earn money to get different clothes at the same shop. It's amazing how enterprising they can become when they experience the benefit of learning how to budget and manage their money. 

[Earthmerlin]

Compound interest, I think.

I'm sorry for the 'brain fart'....perhaps it's the pool water taking hold or the brain-dead-ness from the recent vacation.....but 'compound interest' isn't resonating with me this moment. I think you're saying to put her $ into something that offers this?

[Earthmerlin]

I'd just say no. That money is for college or a car or another big future purchase.

 

Instead, I'd help her budget the money she has now. Does she get any kind of regular allowance, or can she earn money for doing special chores? Help her set up an envelope system. We had envelopes for spending, tithing, gifts for other, AWANA dues (which later became an envelope for youth group trips), and saving. This way they had money for little gifts when birthdays or Christmas came up, they learned to save a bit of their money, and they learned to decide what items they really wanted to spend their spending money on. If you want it, save for it. My kids eventually did things like make a new envelope to save for a special purchase, and one even hired a sibling to do the chores one week (they wanted to buy something together, and the one had more money saved towards it than the other, LOL!).

 

It's not too early to teach the idea of a budget, budget constraints, delayed gratification, fiscal responsibility etc... all on kids' terms. And my kids were very proud to earn the money for their own dues. They also sold items at a garage sale and sometimes that money went for certain things too. (One year they earned their own school supply money--their choice! They loved being able to decide on some special items as well as some practical ones, and telling the cashier they earned the money themselves and were paying for it themselves.) My youngest often sells her clothes at a local consignment shop to earn money to get different clothes at the same shop. It's amazing how enterprising they can become when they experience the benefit of learning how to budget and manage their money.

I like the consignment idea--thanks!

[Earthmerlin]

She's always thinking of (little) ways to make money, which both scares & excites me. It scares me because I don't want to create a money-hungry person. It excites me because she's bright, using her 'noodle', & already being resourceful. I lean towards the latter, LOL.

 

I thoroughly appreciate many suggestions in this thread. Mid-term savings, chicken coops, & consignment shops are all doable options. Broadening my horizons through these posts allows me to broaden hers, which is priceless. Thanks!

Edited August 13, 2017 by Earthmerlin

[Rosie_0801]

I'm sorry for the 'brain fart'....perhaps it's the pool water taking hold or the brain-dead-ness from the recent vacation.....but 'compound interest' isn't resonating with me this moment. I think you're saying to put her $ into something that offers this?

 

Yep.

 

 

 

 

She's always thinking of (little) ways to make money, which both scares & excites me. It scares me because I don't want to create money-hungry person

 

We might not want our kids to turn out to be greedy little so and so's whose only pleasure in life is ruining other people for their own gain, but there's a lot of space between that and poverty. Money is choices. We don't want our kids to grow up lacking choices. Who says "I don't want my kids growing up to have freedom! The rat race was good enough for me!"

[Earthmerlin]

Yep.

 

 

 

We might not want our kids to turn out to be greedy little so and so's whose only pleasure in life is ruining other people for their own gain, but there's a lot of space between that and poverty. Money is choices. We don't want our kids to grow up lacking choices. Who says "I don't want my kids growing up to have freedom! The rat race was good enough for me!"

Now ain't that the truth! There sure IS a lot of space & 'there's enough pie for all'. Hmm, that certainly puts it all into perspective, I'd say. Well said.

[SereneHome]

At 7, I would let her do whatever, unless we are talking  about thousands of dollars.  I think at 7 money things are still way way too abstract.

 

And I would rather them "spend it all" at 7 than 27.

 

 

[Earthmerlin]

At 7, I would let her do whatever, unless we are talking about thousands of dollars. I think at 7 money things are still way way too abstract.

 

And I would rather them "spend it all" at 7 than 27.

Thanks for your reply. She does have free rein with her $5 weekly allowance. Her savings account has several hundreds in it & I don't feel comfortable with her spending all that.

[Earthmerlin]

I know it's slightly off topic but relevant nonetheless, does anyone have suggestions for books on teaching finances to kids? I'm currently reading 'The Opposite of Spoiled' & while it contains obvious advice I find it interesting all the same. I'm quite taken lately with parenting more in this respect & would love additional bedside reading.

Edited August 17, 2017 by Earthmerlin

[Rosie_0801]

I don't know any good books, but my daughter likes reading short biographies of women entrepreneurs online. A few of our old homeschooling buddies are involved in one such organisation and she's been pretty interested in reading their progress. I also took her along to a local market, showing her the advertising techniques people use and having her talk a little to some of the women stallholders. 

[Earthmerlin]

I don't know any good books, but my daughter likes reading short biographies of women entrepreneurs online. A few of our old homeschooling buddies are involved in one such organisation and she's been pretty interested in reading their progress. I also took her along to a local market, showing her the advertising techniques people use and having her talk a little to some of the women stallholders.

I don't know why I cannot 'like' this post but I in fact DO like it. Getting to know the 'behind the scenes' aspects of a business is a great idea!

[Rosie_0801]

I don't know why I cannot 'like' this post but I in fact DO like it. Getting to know the 'behind the scenes' aspects of a business is a great idea!

 

Moderators don't have like buttons.  :coolgleamA:

[RenaInTexas]

When ds was 7, he was able to understand why he couldn't spend savings because he had a budget. So, it may help to teach her how to set up a budget. Allott money to her budget categories every time she gets new money, and attach the savings to a long term goal; like a college education, college dorm decorations, senior year expenses, first car, etc... 

 

One rule I have is that they have to save 50% of all money they earn, 100% of all money they are given --not gifts, just grandma gave me $10 just bc, and they have to tithe 10% of all money earned or given. This has given them an understanding that you have to earn ~$20 to have ~$10 to spend; which mirrors real life ... after we pay taxes, health care, life insurance, and 401k.

[bolt.]

We think of the various kinds of savings in distinct ways that appeal to the concrete thinking of young children.

 

We have save-to-spend. It's not much, and usually, the child has something in mind for the growing total. It's also used for clothing purchases and presents that they give to others, so I'm able to say, "If you spend it down to nothing, what will you give people for Christmas next month." Or, "If you spend it down to nothing, what about back to school sales on clothes?" Or, "I thought you were saving for your own laptop. Is this thing worth setting your total back by that much?" (Or, whatever.)

 

However, if a child wanted to spend their whole save-to-spend fund, I wouldn't stand in the way of a reasonable purchase. It's a good experience to deplete it, and not have enough to buy something different later.

 

I think perhaps the heart of the problem is that you are giving the child money, and not giving her anything responsible that she might do with it. If there is nothing responsible to do with the money, the only other options are to spend it on something irresponsible or keep it indefinitely until some responsible choice arises. That's not a great system for kids and money. I think you either give them little enough money that it's all for wasting, or you give them sensible uses for greater amounts of money.

 

---

 

Aside from save-to-spend, we also have save-for-launch, which is understood to be generally for moving out, paying for university, getting married, buying cars or even buying houses. This is not something they are free to drain. They've never asked. This helps us all see that they are 'still saving' even if they deplete their save-to-spend fund.

 

We also have invest-for-old-age. Clearly, they are not elderly, and the purpose of this fund is that those tiny investments (made now) magically use all the years of their lives to grow into the money they will need when they are too old to work. They received inheritances from a great-grandparent that went into these funds.

 

We don't do an "emergency fund" because children don't have emergencies that they have to fund for themselves. As older teens, we might encourage them to break off a portion of their launch-savings into an emergency fund... possibly after they become vehicle owners?