Did you ever dream about owning a Ferrari? Did you ever want to put a pool in your backyard (or even have a backyard to put one in)? An adult's financial goals generally require a heavy savings commitment to reach them. Grown-ups save to buy a home, start a family, maybe start a business, and have a comfortable retirement. Those who are successful in meeting their goals generally are the ones who are experienced in saving. These people learned about saving early on.
You can help your child get the things she wants in life by learning to save up. Unless your child was born with a miser gene, she'd probably prefer to spend, spend, spend. But there's just as much satisfaction to be gained from saving as from spending, if she knows what the payoff will be. She needs to understand that she'll never have financial maturity if she doesn't have good savings habits.
To help your child become a good saver, you need to help her understand what saving is all about, and you need to help her decide what she's saving for. In Saving Accounts for Kids, Teach Kids About Investing Their Savings, and Teach Kids to Diversify Their Investments, you find out about other saving ideas as well.
There's Nothing Wrong in Wishing
Does it always seem that your child is asking for this or that? As a parent, demands are constantly being made of you by your child—for attention, affection, and acquisitions. When it comes to wanting material things, there's nothing inherently wrong in the wanting. Having a goal serves as incentive for achieving it.
So let your child dream, as long as he understands that it's up to him to make his dreams come true.
Watch Your Step
Don't undermine your child's savings resolve by leaping in to buy the thing he's saving for. You may satisfy his desires today, but you're teaching him that he doesn't have to save to get the things he wants.
Piggybank on It
When estimating costs of the things your child wants, it's always better to err on the high side. The worst that will happen is that she'll reach her goal sooner. If the target savings is too low, she won't save enough to reach her goal.
Making a Wish List
A wish list is just another way of putting down financial goals on paper. According to one survey, teenage boys typically save up for a car, teenage girls for college, while younger children have no particular savings goals. Your child can learn to become a more determined saver by deciding what he's saving for.
Use the following chart to list your child's goals. You'll see that there are two columns: short-term and long-term. Short-term goals are ones that can be reached in a matter of weeks or a couple of months. Long-term goals can take months or even years to attain (a few suggestions have been entered in this column for you). When a child is young, he'll probably only have short-term goals; he can't be expected to think in terms of months or years. That's okay. Just having short-term goals is enough to get him started on the road to saving success. For example, an elementary school child might want to set a savings goal that can be reached within a few weeks or a month because this time frame is easily understood. The important thing is to have some sort of goal so that he can develop the savings habit.
|Short-term goals||Long-term goals|
|____________________||Senior class ring|
Now that your child knows what he wants, you'll have to help him put a price tag on what he's saving for. For example, if he wants to save up for the prom, make sure that he tallies all the expenses involved (tickets, tuxedo rental, corsage, limo, after-prom party, and so on).
Making Wishes Come True
Having a savings goal is only half the battle; your child must know how much she needs to save to reach her goal. There are different ways to figure what's necessary to put aside.
- Use a regular savings plan. Decide how much of each allowance or paycheck will be set aside, regardless of the savings goals. Then the item can be purchased when the goal is met. When my girls started baby-sitting, I suggested that they put half of everything aside for long-term goals. They could save up or spend the rest. This one-half rule worked so well that they had a nice bank account when they went to college.
- Save as much as possible. Supplement a regular savings plan with additional savings. This way, your child will reach his goal when he has saved what's needed to buy or do the thing he's aiming at. For example, if something costs $100 and his regular savings amount is $5 a week, then it would take him 20 weeks (or about five months) to reach his goal. But if he gets an extra $5 here or $10 there, he can cut his saving time considerably.
- Back into a target savings amount. If your child knows how long she has to save for something, she can divide the dollars she needs by the time she has. For example, if it's going to cost her $500 to go to the prom and it's August before her senior year, she'll have 10 months in which to save up for this big expense. That means she'll need to put $50 aside each month ($500 ∏ 10) to pay for prom expenses.
Targeting a savings amount is most effective for the big ticket items she's saving for. You'll see that in a minute when it comes to saving for college.