Teaching children how to save and spend


A typical teenager spends several hundreds of Euros a year mainly on clothes, food, mobile phone calls and entertainment.

When they enter post-secondary education, many teenagers will significantly increase their purchases. Those who get a job, especially those who work full time, may spend more because the amount of money in their pockets is greater.

Most teenagers are not well-prepared to make their purchases wisely. Some teenagers waste hundreds of euros a year on purchases that do not represent good value. Much of this money comes from the hard-earned savings of their parents.

Teaching your teenagers how to save and spend is important to your present financial condition and to the future financial condition of your children. But it is valuable for another reason - helping to prepare your children to be wise consumers can provide an opportunity for you to do things with your teenagers that are interesting and fun, and will increase their appreciation of the financial challenges which you face as a parent. Handled properly, this opportunity is educational and enriches family life, at the same time.

The importance of saving

You should communicate to your children the importance of saving a portion of income for future expenditure – a car, a holiday, education, a house. You should also inform them of the dangers of spending more than their income.

The importance of budgeting

Developing and adhering to a budget is a method they can use to save and avoid burdensome debt. You should explain to them the importance of budgeting and how to carry it out.

How to teach your children

  1. As soon as children can count, introduce them to money. If you do not, TV will, directly and indirectly. Take an active role because repetition and observing others are the two methods they learn by.

  2. Communicate with children, as they grow, about your values concerning money and how to save it, make it grow, and most importantly how to spend it wisely.

  3. Start early. Allowances, for example, send powerful and important conscious and subconscious message. Given to children to recognise their active participation in their household, an allowance is an effective means of teaching an important relationship between money and effort: helping with family pets, washing the dishes, taking out the garbage. It creates a connection between effort and earning, which is much more positive and powerful than children simply getting what they want on demand. At the same time, children must be taught to appreciate that they are part of a household to which they must contribute voluntarily. They must not grow up expecting payment for every chore.

  4. Help children to learn the difference between needs, wants and wishes. This will prepare them for making good spending decisions in the future.

  5. Setting goals is a fundamental concept to help young people learn the value of money and also how to save. People, young or old, rarely meet targets they do not have. Nearly every toy or other item children ask their parents to get for them can become the object of a goal setting session. Benefits of saving to achieve the goal is an important aspect and provides built-in motivation. Goal setting for good grades, toys or savings, helps children learn to become responsible for their own future.

  6. Indoctrinate your children to savings instead of spending or consumption. Explain and demonstrate the concept of earning interest income on savings. Help children calculate the interest so they can learn and see how fast money accumulates through compound interest – where interest is earned on interest if added to an accumulated amount at the bank. You may even consider matching the amount your children save on their own such as when the family is considering buying a computer.

  7. When giving children pocket money, give the money in denominations that encourages saving. For example if the amount is €5, give out five €1 coins and encourage at least one of the coins to be set aside in savings. (Just saving €1 a month at 2.75% interest compounded monthly will total about €140 in ten years.)

  8. Take your children with you to a bank when you open their savings accounts. Beginning the regular savings habit early is one of the keys to savings success. Don’t refuse them when they want to withdraw from savings for a purchase or you will risk discouraging savings all together.

  9. Keeping good records of money saved and spent is another primary skill young people must learn. Encourage children to keep receipts of all purchases and to make notes.

  10. Take children with you to the supermarket and other stores, explaining how to plan purchases in advance and make price comparisons and also checking for value, quality, after-sales service, warranty, etc. Spending money can be fun and very productive when spending is planned. Unplanned spending however, usually results in money being wasted because we obtain poor value for money spent.

  11. Allow young people to make spending decisions, both good and poor, and then encourage a discussion of pros and cons before more spending takes place. Encourage them to employ common sense when buying. That means research before making major purchases, waiting for the right time to buy, and selecting at least three other things money could be spent on, once it has been decided to make a purchase.

  12. Teach children how to evaluate adverts on TV, radio and in print. Will the product really perform and do what the commercials say? Is it really a sale price? Are there alternative products available that will do a better job, perhaps for less cost? Just because something looks expensive, does not mean it represents the best value. Remind them that if something sounds too good to be true, it usually is.

  13. Alert children to the dangers of borrowing and paying interest. Be cautious about making credit cards available to young people. Credit cards have a message: “SPEND!” Some teenagers use cards for cash advances and also to meet everyday needs instead of an emergency. If your bank permits you to do so, you can teach your children how to use a credit card by allowing them to use a supplementary card issued on your account. Set a limit on their spending and require them to pay related costs, including interest and the annual fee.

  14. Using a calendar, establish a regular schedule for a family discussion about finances (e.g. the time when they count their savings and receive interest on their savings.) This is especially helpful to younger children. Discussion topics should include the difference between cash, cheques and credit cards and also wise spending, how to avoid the use of credit and the advantages of savings. With teenagers also discuss on how to economise at home, and alternatives to spending money.

  15. Communicate some of the universal virtues that can be attached to money and receiving, spending or saving it: saving, charity, self-discipline, generosity, and sharing.

Money gives people – both young and old – decision-making opportunities. Everyday spending decisions can have a far greater negative impact on your children’s financial future (and yours also) than any savings decisions they (or you) may ever make. Educating, motivating and empowering your children to become regular savers will enable them to keep more of the money they earn and do more with the money they keep!

Last updated: Sep 07, 2016

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