4 Smart Ways to Teach Kids About Saving Money

Kids who learn how to save at an early age have a big advantage over their peers as they get a head start on learning how to manage money. But this doesn’t happen automatically. Parents and caregivers can be crucial in helping point children in the right direction.

Here are four steps you can take to help kids learn to save money — whether they’re starting with their birthday gift, a first paycheck or even a few lucky coins found in the couch cushions.

Before your child makes any moves with their cash, an important first step is to talk about money and what it means to them, says Caroline Tanis, a New Jersey-based financial advisor.

Tanis suggests asking kids how they want to spend their funds. How much would they like to spend versus save? For the money they’re saving, what are they saving it for? Having children think through these questions can help them become empowered about managing their cash in the future, Tanis says.

Open a savings account where kids can earn interest and watch their balance grow over time, says Kelly Klingaman, a certified financial planner in Austin, Texas.

“If kids earn interest on their balances, they’ll eventually start to understand the concept of compound interest at a young age,” Klingaman says. This concept — where interest earned in a savings account earns interest on its own — is a great way to increase savings and have your money work for you, she says.

When choosing a savings account for a kid, look for one that has low or no monthly fees, no minimum deposit and earns a high yield. The best kids accounts will also offer online access and mobile apps so parents and kids (if they’re old enough) can see their balance.

But parents don’t have to limit themselves to an account that is marketed only to kids. Some of the best savings accounts are online accounts that earn high interest and have low fees. Many financial institutions will let a caregiver open an account in their own name for a child — even an infant — so it’s really never too early to save.

Once an account is established, you can help your child think about planning for the future by helping them create a concrete savings goal. Natalie Runyon — a mom of two kids, ages 8 and 12, in New York — says that in addition to the eventual thrill of achieving an accomplishment, goal-setting is important because it helps her kids learn the importance of delayed gratification.

If kids learn to set goals and accomplish them after delayed gratification, they may have a better understanding of the value of their purchases, she says. Runyon says this is particularly important to her because of the types of spending temptations her children are likely to experience in the next few years.

Many top savings accounts have mobile apps to help parents and kids keep tabs on their money as it grows. Savers can also track progress with a savings goal calculator.

Part of teaching kids how to save money is teaching them how to spend it. Consider supplementing a savings account with a mobile-focused spending account or app that offers debit cards, budgeting features and the ability to let a parent monitor and limit spending.

These features allow kids to experiment with money and enforce limits to help them manage their spending, Klingaman says. When kids (and adults) have a sense of control over their spending, they often find it easier to reach their savings goals, she says.