It’s a known fact: not all siblings are 100 percent alike. So, for parents of multiple children, it can be difficult to duplicate parenting techniques with children of differing personalities.
For these reasons, I am oftentimes approached by my clients for advice on how to inspire fiscal responsibility within their children when behavioral tendencies contrast. For example, in families who offer their children allowances, there is usually one child who is great at saving, and one who is not. The child who struggles to save will oftentimes ask for an advance on their allowance, leaving the parents to wonder how they can inspire that child to save their money, instead of spending it all.
In these instances, there is one practice that always comes to mind, as it can work for children with various spending tendencies. I call this lesson the family incentivized savings plan.
Unfortunately, today’s bank interest rates are much lower than they once were, as today’s average savings account yields a 0.06 percent APY, a recent study found. These interest rates are so low, children aren’t as motivated to save in a savings account as they were in the 1980s. With the family incentivized savings plan, parents can promote the importance of saving amongst all of their children, while children can grow their individual savings.
- Determine a chore list and subsequent allowance
If you’re not already, I highly encourage all parents to set up a recurring chore list for their children. In exchange for the help around the house, they will receive an allowance. Not only does this foster a strong work ethic in children, but it also gives children an opportunity to learn to manage money.
There are various ways for children to save their monthly allowances, but one way I encourage is through a four-slotted piggy bank, which allows children to learn to give, save, invest and spend.
- Monitor children’s monthly savings
At the end of each month, children are expected to bring their monthly savings to their parents to earn more money through a monthly interest rate. But here’s the catch – it’s their responsibility to remember. If they remember to bring their monthly savings, families should then count the money together. If they forget, they won’t reap the reward for the month.
This approach is impactful, as it enhances the value of currency to children and helps teach important money skills. It also nurtures a sense of responsibility in children.
- Offer healthy interest rates
Once monthly savings are accumulated, parents should provide children with the opportunity to accumulate more money in their savings through a healthy monthly interest rate. While rates vary for each family, I recommend parents offering between 5 and 10 percent to really spark their children’s interest to save. Again, this benefit should only be offered to children who remembered to bring their savings to their parents that month.
Once offered, parents will hopefully start to notice a drastic change in their children. A child who once wasn’t motivated to save will now find great value in it, sometimes even competing with other siblings to see who can grow their savings account faster. Most importantly, they can start to recognize the value of savings.
- Encourage children to make regular deposits
While current interest rates for savings accounts may be low, it is still important to deposit money in the bank on a regular basis. Putting money into the bank also helps children to grow their savings account, as money that is out of sight is also out of mind and thus less likely to be spent by children.
- Cultivate rewards system
Instead of telling children they can’t have something, instill a rewards system that will encourage children to work towards their goals. Parents should reward what they want to see.
For instance, if they tend to spend their savings, then reward with regular deposits that accumulate savings, such as with this family incentivized savings plan. Not only will this help with children’s long-term saving skills, but it will also inspire an interest in investing, which no child is too young to learn.
Through this system and the learned behavior of savings, we can help our children prepare for their futures and cultivate important financial skills in their youth. For additional financial lessons for children, please request more information about my complimentary workshop, Raising Financially Fit Families, which I present to groups and organizations of all sizes.
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