April 12th is National Teach Your Children to Save Day. With that said, 55 million Americans have no emergency savings (CNBC), making now as good a time as any to teach your children the importance of saving their money.
You may be thinking my child has no expenses, what do they need to save for? While they may not need to build an emergency fund and it may be too early to begin discussing retirement, it’s never too early to get them started on a savings program that instills strong financial habits. This may also benefit them when the time comes for college.
When it comes to passing on strong financial habits to your young ones, more is caught than taught. In other words, kids are much more likely to watch and reflect the habits you practice in your household. If you’re one to buy a new car every two years and buy the newest technology as soon as it’s released, your children are likely to mimic your spending habits.
If you’re the type to live within your means, drive cars for ten years, constantly volunteer and donate, your children will reflect those habits when they grow up. And they’ll pass those financial values on to their children and their children’s children.
Maybe you can’t leave behind a fortune for your children when you pass but leaving them with a solid financial lifestyle may be equally, if not more, valuable.
The Three Jar System
Zak, our chief investment officer, teaches his kids to save through the three-jar system. The three-jar system is pretty straightforward – your kids put their allowance, birthday money, etc. into three jars: spending, saving, and giving.
Perhaps your child has something they really want to buy – a brand new toy or video game. The ‘spending jar’ allows them to save up money to be spent specifically on that. It allows them to indulge. It allows them to spend. Not every penny has to be saved; you as the parent can decide how much should be allocated to each jar.
The ‘save jar’ gets your child in the habit of saving constantly. Every windfall should go to increasing your net worth; it should be saved, or it should go toward paying off debt. Well, your child doesn’t have debt. Each time they get paid – allowance or otherwise – they should save a portion of it. As your little ones grow the amounts will change and they may swap the jar for a savings or investment account, but the action of consistent saving stays with them.
And finally, the ‘giving jar.’ Kids are givers. Kids have the biggest hearts and would give all of their money to a charity if they could. That’s why the giving jar is so important. It allows them to give and feel good about their contributions while still paying themselves. Giving provides an opportunity to instill charitable habits in your young ones.
The value of giving can be taught in other ways as well including charity work. Not only does volunteer work teach them to give to those who need it more, but it also teaches them the value of a dollar – especially when volunteering with organizations such as your local homeless shelter.
The three-jar system teaches your children to save in all aspects of their financial lives. They save for things they want. They save to save. And they save to help others.
Again, you can determine the allocations of each jar. It doesn’t have to be 33% in each – you may consider allowing them more spending money.
Whether or not you choose to adopt the three-jar system into your family’s financial lifestyle, it is increasingly important to teach your children how to save. If you have a different method, we’d love to hear about it. If you do adopt the three-jar system, let us know how it works out.
For more personal finance tips, follow us on Twitter.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
No strategy assures success or protects against loss.