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Teaching kids about saving?

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Wherewhatwhen · 29/05/2023 20:45

I was brought up in a home without any money and with parents who weren't very good with budgeting, my parents often ran out of money before the end of the month and ended up borrowing etc. I moved out early and never learned how to manage money or save. I've only just started saving now in my thirties, as I always had the mindset that I couldn't afford to save. Now that I've started saving £100 a month I realise that if I'd saved even £20 or £50 a month over these past 10-15 years I would be so much further along to things like a deposit for a flat. I've always had the mindset that I am poor and that I will never have enough to buy a flat or a car or whatever anyways, and even when I've had a bit of disposable income I have ended up spending whatever I had.

My kids are just old enough to get their own bank accounts with debit cards and they get £5 a week in pocket money. What are some good habits to set up in terms of saving? I'd like to encourage them to always save a part of the £5 but how much is sensible in order to set up good habits?

Should they keep all the money in the same account and also add in birthday money etc to that account? Or should they have their own separate savings account to transfer part of their pocket money to, to make sure they don't accidentally spend it? What sort of things is it then appropriate to spend your savings on?

Apologies if these questions sound silly, I just really wish someone had taught me good money skills when I was younger and maybe I'd be a bit better set up now! I appreciate any advice.

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IamSlave · 29/05/2023 20:49

Hyper jar, has savings jars and jars you can name like laptop, sweets, new bike etc.
Also show them how you budget

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seekingasimplelife · 29/05/2023 21:58

A few things I did with my DC...

Set them a challenge to find out about compound interest. Why did Albert Einstein say 'Compound interest is the eighth wonder of the world - he who understands it earns it; he who doesn't ...pays it' ?
Ask them to research their own bank accounts - the pros and cons of each option - what benefits does each one have (eg: some attract compound interest equivalent to best savings rates)? Offer a financial reward for their careful research and conclusions.
Reward regular savings habits with extra bonuses - eg: saving 20% of pocket money for 3 months receives an extra £5 bonus; saving 20% for 6 months receives an additional £10 bonus; saving up to a year - £20 bonus (or whatever amount you deem suitable). Also a fun trip out for the successful savers...

I think rewarding good savings habits is much more effective than restricting their pocket money and insisting it is saved - if they don't have a free choice over their pocket money it isn't really theirs. Ditto with them buying junk rubbish with it - they will learn what is of value to them by making mistakes on purchases.

Birthday and Christmas money I didn't include in any savings, as it seemed in lieu of a gift, so they could spend it as they wished - unless it was specifically given to keep as savings by the giver.

Also, talk to them about larger items or experiences they might like to save up for in the future (sometimes we did this as a New Year's resolution). If I felt these were reasonable purchases but would take them forever to save up enough to buy, I would sometimes offer to match half the amount once they had saved up the other half...(one of my dc saved for a rather expensive electronic item this way, and also by selling their outgrown clothes, shoes and used books on ebay.).

If you're planning a day out and they want to take pocket money - ask them to think beforehand about how much they might want use, so they don't accidentally overspend. If you do this regularly it will build a good habit for them.
I linked pocket money to doing regular daily household chores, and they could earn occasional extras for optional more onerous tasks once in a while.

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coodawoodashooda · 29/05/2023 22:16

These are great tips. Thanks

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Wherewhatwhen · 29/05/2023 22:35

Thank you so much for those tips, @seekingasimplelife . I don't know the answers to any of those questions myself, re compound interest etc, so it would be a good exercise for me too!

So it sounds like you are saying they should have a spending money account which pocket money and birthday money goes into. Then their own separate savings money account for longer term savings that they can transfer a portion of their choice into. Have I understood that correctly? So birthday money and pocket money goes in the spending account and they can choose to spend it when they wish. And then encourage a portion of they pocket money to be saved into a separate account.

Is there a general percentage for what portion of your income you should aim to save, is that 20%? So as their pocket money increases or when they get a part time job in the future - always try and save at least 20%? Of course as you say, it has to be their choice, but I'd like to be able to advise them on a strategy.

I think my DC would be quite keen on saving a bit at the moment, so I really want to seize on that and instil some good habits. They are also really keen on selling stuff and have saved up in jars etc before, so the willingness is very much there. I just struggle with the structure as I don't have the skills myself.

One more question, say they've saved up a chunk of money - e.g £100 and they want to spend it on a bigger purchase that costs £100, should I advise them to not buy something that clears all of their savings? I.e should should you always keep some money saved, so save a bit more first? One of my issues has been that whenever I have managed to save a bit of money, it's always been spent on something in the end, so I never have a buffer.

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seekingasimplelife · 29/05/2023 23:48

It sounds as if you're asking all the right questions. It's great that you're thinking ahead about how you can support your dc with developing good financial acumen.
To answer a few questions...
I would leave it up to them to decide if a separate savings account is needed. Children's current accounts can offer a good interest rate, and they may not want the hassle early on of managing two accounts for little benefit. Keep it simple.

One thing you could do is initiate a financial review with them each April, linked to the financial year, when there are often savings incentives for new accounts.

At this stage I would just encourage them to start to save a portion of their pocket money - It takes quite a lot of self discipline to develop this skill for a child and understand the value of delayed gratification. Then let them spend it on a big purchase if they wish - they are still developing the savings habit.
I chose 20% savings for adding the extra incentives, as I like the simplicity of the 50-30-20 rule for explaining budgeting later on.

I always emphasised that the value of savings is the freedom it gives, and options as adults. If I have 3 months salary saved I don't have to panic if my job falls through; if I have 6 months salary saved I can be sure I will manage if I fall ill, if I have 2-3 years salary in the bank I can quit a job I hate and retrain for something else. If I have enough saved and invested for a long-term passive income, I have freedom to decide how I want to live my life.
This can work for children too - when they are ready. If they always keep some emergency savings they will have options if something crops up. This is an easy to understand concept but is rarely explained.

Another thing I did was chat regularly about finances of famous people. Contrasting two footballers or pop stars for instance, who had earned similar amounts in their career - why did one go bankrupt and the other build a fortune? Spending less than you earn, and saving and investing wisely is the key. This holds true whatever your level of income - even for the very wealthy.

For the 50-30-20 rule of budgeting for adults...

https://www.ybs.co.uk/savings/guides/budgeting-made-simple#:~:text=One%20very%20simple%20way%20to,going%20on%20living%20your%20life.

How much of my salary should I save? | 50 30 20 Rule - YBS - YBS DXP Prod

Not sure what percentage of your salary to save each month? Learn simple budgeting tips and all about the 50 30 20 rule here.

https://www.ybs.co.uk/savings/guides/budgeting-made-simple#:~:text=One%20very%20simple%20way%20to,going%20on%20living%20your%20life.

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