It’s essential to arm your children with the knowledge and habits of fiscal responsibility. Saving money is not nearly as thrilling as spending, but as the parent of an 8~16-year-old, you have a golden opportunity to instill some crazy strong saving habits in your kids early on.
Growing up, my parents imposed the "Brooks Bank” upon my sister and me. I wrote about this in Family Bank Blueprint – the essence is that half of every dollar earned got put away into savings. We hated it at the time, but when that lump sum was handed to me as I left for college, woah!! Approximately $2000 at the time, in today’s dollars it was worth ~$4600. That’s a lot of pocket change for an 18-year-old. I’d worked too hard for too many years to build up the balance, and I treated it reverently.
In our home we also “tax” our kids 50% of every dollar they earn. This “tax” is really forced savings, which goes into a savings account and earns compound interest. Our kids aren’t any happier about it than my sister and I, but they don’t have a choice. Half goes into the bank. End of discussion.
As each child graduates high school and moves on, they will be given their account to keep or liquidate as they see fit. The college students can use this as pocket money during the school year, to focus on their studies instead of getting a part-time job. The entrepreneur can use it to fund their business growth. The traveler can fund their adventures. It can fund a deposit on an apartment or downpayment on a home. It’s their money, and up to each how to put it to good use.
Teach your children to save aggressively. Along the way they will:
Learn the disciplines of “saving before spending”
Set and achieve short and long-term goals
Witness the magic and power of compound interest
By embracing these concepts, you're not just teaching your kids about money – you're setting them up for a lifetime of financial independence and success.
‘Saving Before Spending’ Discipline
The first step in nurturing financially savvy kids is to shift their mindset from a spending-first mentality to a saving-first approach. It starts with a simple concept: save before you spend.
“Do not save what is left after spending, but spend what is left after saving.”
~Warren Buffett
How to foster this mindset in your children:
Let Them Earn: For children to save, they need to have income. Allowance can be a powerful tool in teaching kids about saving. Tie their allowance to household responsibilities. This approach teaches them the value of hard work while giving a sense of earning their money, making the act of saving it more meaningful. If you provide an allowance, consider adding a bit extra to allow them room to save, while still being able to spend meaningfully (kid-sized). If you don’t provide an allowance, let your kids create their own side hustles. Tax half of any external income they make, and deposit it into their savings account. Decide if cash gifts are subject to this savings requirement. For the Lennons, birthday and holiday gifts are tax-free, since we wouldn’t tax half a Lego set or half a bike if the gifter had made a purchase instead of a cash gift. Decide what to do with yard sale proceeds. If your kid wants to monetize their outgrown items (a GREAT way to get them to declutter, BTW), make the call on whether this income is tax-free or not. Whatever you decide, be consistent.
Force a Savings Rate: Encourage an open dialogue about Wants vs. Needs. Help your kids understand that by saving first, they can still meet their wants after fulfilling their needs. Give household examples to make needs vs. wants tangible.Decide what savings rate is meaningful for your household. The Lennons mandate 50%; it’s not uncommon to see other families choosing 20-30%. Do what’s right for you, but make sure it’s meaningful and causes some [perceived] pain and sacrifice for the kiddos. Our logic is that we always want saving for the future to be a part of the budget, and like it or not, once they have real income, the tax man will come for his part.
Instill the Habit: Creating any habit requires consistency. Set up a regular schedule for your children to set aside a portion of their money into a savings jar or piggy bank. Personally, I’m all about automation, or else despite my best intentions, my systems fail. I prefer online tracking, either in a bank or a spreadsheet over piggy banks, but you do you. The younger your children are, having jars or piggy banks for them to see and feel is more powerful.
As they age, keeping your ledgers straight in a Google Sheet tracker (where you’re the bank), or in an actual bank is more appropriate. Make sure the kids have direct access to view their spending and savings balances. As they watch their savings grow, they'll feel a sense of accomplishment and motivation to continue.
Deduct the savings portion before giving spending money to your children. This is what employers do – take out 401k or insurance premiums from your paycheck before giving you the leftovers. Your kids will learn that their earning power does NOT equal their spending power.
Goal Setting Power
Goals give purpose to saving and turn an abstract concept into a tangible target. By mandating the forced savings above, you’ve already set the expectation and savings threshold for long-term saving. The younger the kid, the less tangible saving for college or “the future” is.
Encourage child-driven short or mid-term goal setting, based on whatever they care most about. This is 100% up to them to set and pursue. If you want to support and encourage, great! Please don’t force these goals; they need to come from the kids’ intrinsic motivation.
Short-term goals are immediate and relatively easy to achieve. They could be saving for a new toy, a book, or a special outing. This is crucial in teaching kids to save for their own benefit, and not because Mom made them. Achieving these goals provides instant gratification, a sense of accomplishment, and feelings of control over their financial world.
Mid-term goals teach children to plan, prioritize, and work steadily towards something significant over time. They require more patience and discipline. Examples include saving for a new bicycle, a gaming console, or even a used car for the older kids. These goals teach children to plan, prioritize, and work steadily towards something significant over time.
When your child says he wants the expensive thingamabob, work with him to price it out. Look at how much he has in his spending account, and how much income he expects to bring in. Help him set a savings goal. Will he need extra income? Are there other ways to get what he wants?
Some Lennon examples, all courtesy of my son:
When my son wanted a Nintendo Switch, he figured out how to get his older sister to go halfsies with him on the purchase. They bought used game cartridges at a discount from GameStop. When one of the controllers malfunctioned, we asked my Buy Nothing group network if anyone was no longer using theirs. A neighbor who’d also experienced this and replaced theirs had a spare working one that she gifted to us at no cost. Encourage creative problem-solving; they’ll impress you with their tenacity and creativity.
This summer, the same son jumped into the pool with his cell phone. It was TOAST. He loves that thing (no surprise), and had a huge personal motivation to save up to replace it ASAP. During this very dark, bleak time in his life where he had no phone, he spent very little while he saved up to buy a replacement. He was tempted along the way. Each time he said he wanted to buy something, I asked if it was more important to buy the whatzit, or to save up for the phone. Sometimes he chose the phone; sometimes he chose the whatzit. Shortly after the kids returned to school, he was able to buy a replacement phone, and his world returned to normal.
Longer term, the boy wanted to go to Wrestlemania. Without doing much research, he and his Dad agreed that if he came up with $500 of his own skin in the game, they’d go to the April 2024 event in Philly. He set up his own long-term savings account and started depositing $5s and $10s, until he had $80 set aside. Recently, they started researching ticket sales. Starting at $700 per ticket per day for the highest up seats in the rafters (plus travel and hotel), they decided to postpone the dream. He’s in the process of deciding whether to pivot the $80 toward a different bigger goal, or release the savings back to general spending. Because this mini-savings account came from his spending funds, what he decides to do with it is completely up to him.
Strike a balance between short, mid, and long-term goals. Encourage your children to save for all three simultaneously. It’s a preview to the broader topic of financial planning.
Compound Interest Magic
Set-up formal kid savings accounts at your family’s bank or credit union. We opened savings accounts at our credit union shortly after each kid’s birth. FDIC-insured savings accounts are safe places to store money, though they don’t pay much, especially over the past 5 years. Now that interest rates are on the rise, they’re a bit more attractive as financial devices.
When selecting a savings account for your child, look for high-yield options. These accounts offer higher interest rates, meaning your child's savings will grow faster. Many banks also offer savings accounts specifically designed for children and teens, which can be a great starter option.
Regularly reviewing account statements together is an excellent educational opportunity. We opted for paper, because it’s fun for the kids to receive mail with their names on it. Whether online or on paper, seeing how their balance increases over time can be incredibly motivating. It’s also a chance to discuss how interest is calculated and the benefits of keeping their money in the account longer. Help your kids understand the magic of compound interest and having your money work for you.
After five years of saving half their allowance and other income, each child has a meaningful account balance now. Our next step will be to open brokerage accounts to invest part of their savings, in addition to keeping their bank accounts open.
Introducing your child to the concept of compound interest has long-lasting effects. By understanding how money grows over time, they are more likely to continue saving and making smart financial decisions as adults.
Shaping a Future of Financial Independence and Success
By focusing on these three key savings themes, you're doing more than teaching your child about money; you're shaping their financial future. The discipline of saving before spending, the practice of goal setting, and the knowledge of compound interest are invaluable tools.
As a parent, the benefits of this education extend far beyond the immediate. You're fostering a future where your child is financially savvy, independent, and equipped to make sound financial decisions. This not only means a more secure future for them but also peace of mind for you, knowing you've prepared them well for life's financial journey.
Stephanie Brooke Lennon is the author of Family Bank Blueprint, GoldQuest, and What Would Water Do? Simple Strategies for Navigating Life's Obstacles. Her titles are available in Paperback and Kindle on Amazon.com. Follow Stephanie Brooke on Facebook, Instagram, TikTok, YouTube, Twitter, Amazon, and at BrookeLennon.com.