Next week is the perfect time to jumpstart, reassess, or fine-tune your savings game-plan.
Why next week?
It’s America Saves Week, a national campaign designed to get you off your savings duff. You’ll be in good company. Over 40 thousand people pledged to save during last year’s campaign.
And you’ll want to include your kids too.
Why? Because money habits can settle in as early as age 7. And, sadly, most kids aren’t learning much about money in school. That means it’s up to you, and you need to get started. Now.
This year, the team at America Saves Week is promoting 6 saving strategies. Here’s how you can apply each one to your kids.
Strategy 1. Automate Your Savings
Wait. How do you automate deposits to your kid’s piggy bank?
These days, it’s easy. Move the piggy bank to the cloud, access it through an app, and automate the splitting of deposits between separate spending, saving, and giving accounts. (Not sure about the best percentages to use? Check here.)
Oh, and while you’re at it, pay your kids an extremely generous Bank-Of-Mom/Dad interest rate. They deserve something much more compelling than the near-zero rate you’ll find at a real financial institution these days. Motivation matters.
Kids who automatically save a portion of their allowance, chore, odd job, or gift money throughout childhood won’t flinch at automatically deducting savings from their paychecks as adults. Socialize the pay-yourself-first concept as early as you can.
So how do kids access their “cloud piggy bank” money? They use a prepaid debit card or a bank debit card.
Hey, hold on! Shouldn’t kids only use cash?
Well, only if you also believe kids should only use slide rules to solve math problems. It’s 2017 people! Try jamming coins in an iTunes account. Not.
Seriously though, here are 6 (or, maybe 5) reasons your kids should stop using cash.
Strategy 2. Save As A Family
This one is more obvious. There are tons of things you can do to turn saving into a family exercise. Here are 10 ideas. Try one or two.
- Perform a family grocery audit.
- Collaborate with the kids on a money saving meal plan.
- Authorize your kid’s DIY project.
- Adopt a family money motto.
- Conduct a non-judgmental spending audit with your teen.
- Show kids how to escape the “captive audience tax” by buying ahead.
- Turn your kid’s next treat outing into a mini budgeting lesson.
- Take your family swear jar online.
- Let your kids see you leave stores empty handed.
- Reward your kids with homemade Mom/Dad dollars instead of cash.
Strategy 3. Save Now For Retirement
Save for retirement? Before your 20s?
As soon as your teen brings home that first paycheck from a summer job, jump on it. That’s when you want to roll out the “Family 401(k)” plan. In a nutshell, that means: open a Roth IRA, offer a parent (and even a grandparent) match to help max out the allowed contribution, and stash it in a low cost, broadly diversified index fund for the long haul. Rinse and repeat year after year. The power of starting early is incredible.
You’ll find more info about the Family 401(k) idea, and how I “sold” it to my teens here. It’s easily one of the smartest financial parenting moves I’ve ever made.
Strategy 4. Save At Tax Time
Tax refunds? Kids?
Again, with working teens, this can be a surprise savings opportunity. That’s because many teens have no idea how to fill out a W-4. As a result, many end up accumulating unnecessary tax withholding at the end of the year.
That’s when you can teach your teen how to file taxes for free, snag that refund, and plunk it in the Family 401(k) — see above.
For youngsters who have no clue what taxes are all about, give them a quick (if not traumatic) introduction with the Conan O’Brien method.
Strategy 5. Pay Off High Interest Debt
High interest debt? Kids?
Let’s certainly hope not. Fortunately, youngsters can’t get their own credit cards. And please tell me they aren’t running around with yours! That said, be sure to explain to kids how credit cards work. They see you using yours all the time, so you need to fill them in. Try a conversation like this one.
Then, let your kids cut their card-carrying teeth on a family friendly prepaid card. Find one with with no risk of debt or overdraft fees. Don’t let your kids graduate to a credit card until they pass the No Decline Challenge for at least 6 months. When they’ve proven they’re ready, consider this hybrid prepaid/credit card approach to safely build a credit score while staying on budget.
Oh, and never make loans to your kids, right?
Actually, I beg to differ. Getting an early taste of the burden of debt and how to responsibly pay it off is something I want my kids to experience early. Better to experience that now under my watchful eye rather than later when the the stakes are high. That’s why I let each of my kids take out loans from the Bank Of Dad for big ticket items, like laptops. Deducting loan payments from allowance and chore earnings for months on end is a real eye opener for a kid. Before long, loans lose their luster.
Strategy 6. Save For Emergencies
Yes, kids — and especially teens — have emergencies: that third lost sweatshirt, that first parking ticket. So add an emergency fund bucket to your kid’s spend-save-give system. I’ve found kids actually take a great deal of pride in being able to bail themselves out.
Just think how much less debt there would be in America if every kid learned to maintain an emergency fund, long before getting that first credit card. Why wait?
At minimum, make sure your kid knows that a credit card is not an emergency fund.
You Don’t Have To Be Perfect
But wait, there’s one problem, you say. How can I counsel my child on these savings strategies if I haven’t mastered them myself? Not to worry. You don’t need to be perfect to help your kids learn good money habits. You just have to be willing. You can all learn together.
Who knows? Getting more kids to save during America Saves Week might just save America.
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