Teach Your Kids How to Save Money

January 12, 2022

4 minutes

By age 3, kids start understanding money concepts—so if yours are that age or older, now’s a great time to start exploring money with them. You’ll notice that many guidelines for teaching kids about money emphasize one key concept: the importance of saving. In this article, we’ll focus on that building block of sound money management.

When talking money with kids, many parents start here

One of the first things parents tend to teach their kids about money is how to save it. Simply defined, saving means putting money in a safe place to use later.

In one survey, 54% of parents said their kids had a savings account—and almost 90% said they frequently or occasionally talked to their kids about the importance of saving. On the other hand, 50% of parents said they were somewhat, very, or extremely reluctant to talk with their kids about money or financial topics. If you identify as part of the 50% that’s reluctant, we’d say that starting by talking about saving is a safe bet. But when talking with your kids about saving, what exactly should you say or do?

Try these strategies

After you explain what the word saving means, put it in context with some next steps.

Talk about how to make money as a kid or teen

There are a few ways to start kids off with earning, including providing a small allowance for completed chores, paying kids for odd jobs around the house, letting kids do work for neighbors, and encouraging older kids to babysit or get a part-time job. Remember that you can always create your own household currency with kids to teach them the same lessons they’d learn with actual money, with the idea being that they could use the pretend money to “buy” things around the house, like a favorite meal or activity time with you.

Set up a designated place to save

Kids might save the money they earn in a piggy bank, labeled envelopes, decorated jars, or a savings account. Feel free to get creative with them in coming up with a particular spot where they can save; what’s important is that kids know where to put their money. And note that there is a benefit to having your kids (especially if they’re younger) save money somewhere at home, so they can regularly see it, count it, and keep track as their money grows.

Decide together how much of their money kids should save

Some adults aim to follow the 50/30/20 rule, which states that:

50% of after-tax income should go toward needs
30% should go toward wants
20% should go toward savings and paying down debts

This is a fine rule to follow for adults, but since kids have relatively few needs, we recommend shifting it to something like 30/30/40 to give them a head start on savings. The numbers for kids would look like this:

30% toward needs
30% toward wants
40% toward savings

Help kids create good habits with extra money

Make sure your kids understand the difference between needs and wants before they decide how to allocate what they earn, and if your kids have money left over after they’ve addressed their needs, encourage them to save it—it’s a great habit for them to form.

Talk about why people save money

Once you decide together how much your kids will aim to save, start a conversation about what they’ll be saving for. If kids don’t have any context for saving it probably won’t make much sense, so let them know that people usually save money that they’ll want or need to spend later. You might explain how you save money for specific things, like taking a vacation or buying that new bike. Also, talk to kids about saving money for unexpected expenses, like visits to the veterinarian when a pet is sick or taking your car to a mechanic when something breaks.

Give kids a concrete example of how saved money adds up over time.

For younger kids, you might talk about how $10 saved per month adds up to $120 at the end of a year
With older kids, up the example to $100 per month and $1200 per year

Set specific savings goals

Encourage kids to save their money for one or more specific things, and get more granular with this as kids get older. You might encourage kids to save for:

Things they’d like soon (e.g., a particular pair of shoes)
Things they’d like in 6+ months (e.g., a video game console)
Things they’d like eventually (e.g., a car or money for college)
Unexpected expenses (e.g., clothes for a school dance or admission to an event)

Explain the power of delayed gratification

Tell kids that sometimes it’s possible to achieve a bigger or better goal if we’re willing to wait to get it. In the case of saving money, this means waiting to spend it until enough has added up to reach the desired goal.

Start wherever you are