Financial Literacy For Kids - How to Create the Savings Habit

Many of our habits, both good and bad weor her savings habit, the greater will be their
learned in childhood. By encouraging your child toreturn. Here are 5 top tips to improve financial
save money early in life you are preparing themliteracy and encourage your child to start saving.
for a lifetime of financial responsibility and1. Lead by Example - have a jar or money box
prosperity.where you deposit your spare change. Children
Einstein once referred to compound interest aslearn more by what you do than what you say.
one of the wonders of the world. A greatBy wanting to follow your example your job is
example of the power of compound interesthalf done.
comes from the selling of Manhattan for a handful2. Add interest - when your child is old enough to
of beads:understand the concept of interest you can act
In the early 1600s, the American Indians sold anlike a bank and top up their savings. Keep the
island, now called Manhattan in New York, fornumbers simple by adding 1 coin for every 5 or
various beads and trinkets worth about $16. Since10 they save. It's a good opportunity to introduce
Manhattan real estate is now some of the mostsome simple yet important money lessons.
expensive in the world, it would seem at first3. Open an account - go with your child to the
glance that the American Indians made a terriblebank and open a savings account. Then make an
deal. Had the American Indians, however, soldevent of going and making a deposit. Your child
their beads and trinkets, invested their $16 andwill make positive associations with the act of
received 8% compounded annual interest, notpaying in money.
only would they have enough money to buy back4. Save for a purpose - it's much easier to create
all of Manhattan, they would still have severalan interest in saving (excuse the pun), when there
hundred million dollars left over. That is the poweris a strongly desired outcome on the end of it.
of compound interest over time.Encourage your child to save for a holiday, a
Warren Buffett, one of the richest men in theparticular toy or something they value.
world uses a snowball analogy to explain5. Consistency - For saving to become a habit it
compound interest:must be done regularly and often. Then gradually,
"Life is like a snowball. The important thing islike brushing your teeth it becomes automatic and
finding wet snow and a really long hill"habitual. If you give an allowance encourage your
The really long hill referring to the effect of timechild to immediately put some money away. If
on the growth of money.they get extra for chores or birthdays encourage
Here is a simple example. If your child savedthem to allocate a percentage to saving.
£10 or $10 per week over their working lives ofIn all the above examples it should be emphasised
40 years and received an interest rate of 5%that for the money saving habit to stick it must
they would accumulate £61,040. However ifbe enjoyable and rewarding. The word encourage
they started 10 years earlier, that would beis used rather than coerce or force. Just as
£106,740. That's a difference of over £45,000compound interest will reap rewards over time,
from an extra investment of £5,200.so too will the investment in time spent to
Given that time can play such an important part inencourage the savings habit in your child.
the growth of money, the earlier a child starts his