Five Pitfalls of Teaching Your Child to Save Money

I cannot remember not having a savings account. My parents opened one up for me and I thought it would be a great idea for my kids. What I wasn't expecting were the challenges in their understanding of what a savings account was. When my kids entered kindergarten they were able to open their own 'Student Saver' savings account through the school and a local credit union. The credit union comes to the school once a week and the kids can deposit their money and get a small toy, pencil, or quarter saver book in return. This is a super way to get kids to save money but there are several pitfalls to making them "save" their money.

Kid Savings Pitfall #1: Explaining How Money Works

Five year olds don't really understand the concept of a savings account. You, like me, may have explained the concept of money; buying things, the cost of products, and saving up for something. But I can guarantee they really don't get it. Keep up the explanations because by the time they are in 1^st or 2^nd grade they will begin to understand those concepts.

Kid Savings Pitfall #2: Spend, Spend, Spend

I had them open up their 'Student Saver' account when they were in kindergarten. They absolutely loved taking in a quarter or a dollar to school and never objected to depositing any money they earned or received for their birthday. That is until they started understanding that you can buy some pretty cool toys with that $20 from Grandma and Grandpa. All this time explaining how we use money to buy things just backfired.

I finally had to negotiate a deal with my kids when they started getting very protective of their money. They are allowed to spend half and they have to deposit half into their savings account. My oldest son put up a huge fight about this concept but since I drive, and he doesn't (he was 8 at the time), he had no way of getting to the store to spend his half unless we stopped at the bank first to deposit his money.

Kid Savings Pitfall #3: Stop Taking My Money

This is a concept that my husband remembered having problems with when he was young. He was mad at his mom because all his money kept disappearing. I never thought of this as a problem but I made sure I explained to the kids that this is still their money and they can earn interest on it, even if it is only a few cents, every month.

We also do a 'balance check' after every deposit. This way the kids know that their money is still there and they can also see it grow. Of course, by showing them their balance, this led to pitfall #4.

Kid Savings Pitfall #4: When to Make a Withdrawal

When kids see their balance growing they now want to spend the money. I understand this because, as an adult, I feel the same way sometimes. I try to get them to really think about it and also encourage them to use another way to earn the money for what they want.

The good news is they are not allowed to make a withdrawal when the credit union comes to the school. I have to take them into the bank so there is no sneaking money without mom knowing. Up until this point I have been able to convince them to leave their money in their savings. They want to go to Disney World next year and I told them they have to pay for their own plane ticket. At least this will work for one more year.

Kid Savings Pitfall #5: Kids Are Blabbermouths

On top of everything else you are trying to teach your children, do not forget to include privacy rules. I found out that on Tuesdays, when the kids deposit their money at school, the ones who use the program compare savings accounts. The best solution I came up with was to tell my kids to put their bankbooks back in their backpacks and, if a friend asks them how much they have in their savings account, just say, "I don't know, I didn't look."

You will achieve success when your child finally wants to put his money in his savings account. With some kids this will always be a struggle, but by being honest and explaining how basic economics work you will have a much better chance of your children growing up to be savers.