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It takes more than words to teach a kid how to ride a bike. Not even the clearest explanation of balance or a dazzling visual aid about proper seat height will help when those handlebars start to wobble. The only way a child can get it is to step on the pedals and practice.
Learning how to save money isn’t much different. Instead of merely telling your son or daughter that saving is important, give him or her a hands-on experience. Just as you'd start your child on a bike with training wheels, consider opening a jointly owned savings account to teach good money habits.
Highlight how much your child should save
One out of three American adults has no emergency savings, according to a study by NeighborWorks America, a nonprofit focused on community development. Introducing children to the notion of saving money at an early age can help them avoid a similar fate.
"It is the power of habit that most gets in the way of consistent saving and good money choices," says John Buerger, a financial advisor in San Luis Obispo, California, and a father of two. "Those habits are formed when kids are young — ages 5 to 12."
But if you’re going to encourage your son or daughter to save, you’d better be doing so yourself. It starts with setting aside 10% to 20% of your income, a rule of thumb that also can apply to children who earn money by doing chores or baby-sitting.
For now, placing that cash in a savings account — if possible, one with a high yield — is a good move. Although this won’t produce Big Bird-sized results, it beats leaving cash in a piggy bank. Because you’ll be a joint owner of the account, your child probably won’t have to meet an age requirement. Just be sure to find an account that doesn’t have monthly service charges or other fees.
Although most banks and credit unions let you deposit funds online, Mathew Dahlberg — a financial advisor in Kansas City, Missouri, and father of two — recommends doing this in person.
"After a few months of saving, my children and I went to our bank and deposited our sum," Dahlberg says. "I think that the sights, sounds and even the smell of the bills and change help them comprehend the abstract concept of saving."
Differentiate between short- and long-term savings
Some of the best savings accounts come with online tools that let customers set multiple savings goals. Let your child play with these features to see how some savings can be put toward larger purchases, such as a new bike or video game console, and some can go toward candy or movie tickets.
"Gratification delay is important because it helps kids — and adults — learn to save for future needs instead of today’s wants," says Gary Alt, a Pleasanton, California, financial advisor and father of four.
Keep your child engaged
Unless you’re raising the next Warren Buffett — and if you are, congratulations — topics such as investing and saving money won’t have your kid on the edge of her seat. That makes it important to keep things light and engaging. Some banks and credit unions offer kid-friendly features, such as online games, rewards for getting good grades and other, even more imaginative perks.
"For elementary school kids, have them open a savings account at a bank that has a program aimed at young savers," says Carrie Houchins-Witt, a financial advisor in Coralville, Iowa, and a mother of two. "Our favorite local bank has a 'penny grab' program for deposits of $5 or more, so the kids get to grab a fistful of pennies to add to their deposit. My kids are pretty good at grabbing almost 100 pennies, so that is an immediate 20% return on their deposit."
Lessons for life
A jointly owned savings account is a great place for kids to stash at least some of their allowance or income. And it also can teach them a thing or two about managing money, which will pay off once the training wheels come off and they open an account of their own.
"If you can build the saving habit from the get-go," Buerger says, "setting aside money will become less about pain, sacrifice and self-discipline, and spending becomes the outlier activity that goes against what you've always done."