Thursday, May 29, 2008

Age Old Goals

I've advocated the idea that saving for a short-term goal is a good way to teach young kids about the value of money. So, for example, during the Money Mammals Challenge, my daughter saved her weekly allowance over a month to buy a new shirt (she's now five and needs some new clothes). My wife and I both saved for tangible things as well so that she could see that we were engaged in the Challenge as a family. As I've noted in this blog, I've used this approach of short-term savings goals numerous times in order to teach the concept of saving. My wife - who is much more financially savvy than me - asked me if it's such a good idea to associate saving so directly with spending, albeit delayed gratification spending. I told her that I thought it was, but I figured another source could more effectively make my case. So I turned to a classic. I read a nice piece in a terrific book I picked up from Amazon from 1969, The Time-Life Book of Family Finance. This 40-year-old tome makes a terrific case for the need to be practical in our approach to teaching kids to save:

"One idea about money that nearly all parent try to inculcate in very young children is the importance of saving. The effort is frequently wasted, perhaps because so many people go about it in the wrong way. Too often saving is not presented in its true light, as a practical method of satisfying needs and desires, but as a vague ideal, a Good Thing symbolized by the ubiquitous piggy bank...Saving can be either a negative action - a self-denial - or a positive action leading to some desired goal. For most of us, saving must be positive: The desire for some future good has to be stronger than that for an immediate satisfaction...the reward must always be attainable and attractive. If it is not, we will not save, and neither will Junior.
Against this backdrop, let's try to imagine what goes in Junior's mind vis-a-vis his piggy bank. [When he receives pennies] he is instructed to "put them in Piggy." This is accompanied by smiles and a general air of "we're doing a good thing." It seems to be a game that adults enjoy playing, possibly because of the interesting noise the pennies make when Piggy is shaken. It is also an interesting kind of magic, because the pennies do a disappearing act. You never see them again. In fact, Junior is admonished that you never take money out of Piggy. That money is being saved.
It is not clear what Junior is learning from all this, unless what the parents have in mind is training him to be a miser. It certainly is not teaching him that a deferred use of money can be more satisfying than a present one..."

The article also makes a great case for using clear or translucent savings jars or banks.

6 comments:

Devin said...

Totally agree with you here. I think the important pieces are the movement of money, what saving money can do for you, and the difficulty in getting money in the first place. In our house, we even challenge the kids to use let water, show them the water bill and the difference they've made (and even throw in a little financial incentive for reducing the expense). Great stuff.

John said...

Devin,

It's a great idea to show them the bill and get them invested in saving for the family's sake. Good work. Thanks for reading.

mark said...

You are doing a great job. I have an idea for teaching kids savings. How about a clear bank where kids can see there money. Have 4 compartments, one for spending, one for future spending (for bikes etc), one for investments, and one for giving.

John said...

mark,

Good idea. I agree that it's good for kids to see the money they are sharing, saving and spending smart. You can go to our store to purchase clear Money Mammal customizable banks, www.themoneymammalsstore.com.

John

Amanda van der Gulik said...

Hi John,

You are a true inspiration!

Not only do you offer us top-notch products through your money mammals but you are also offering us great sound advice in your blog.

In my own ebook, "The Insider's Secrets to Raising a Future Millionaire", I go into detail on this subject of making sure that a portion of our child's savings need to be spent immediately.

Especially at a very young age, children must be able to see the benefit of their hard-earned efforts.

I suggest, they take the money they earn and split it this way:

10% savings
10% investing
10% charity
10% for a particular goal (like that new bike they have their eye on)

SPEND THE REST IMMEDIATELY!!!!
(That's 60% to spend!)

That's enough for them to be able to really feel the 'emotional high' they will get in that moment when they get to buy something special from their very own hard-earned cash!

It will be enough to get them fueled up to earn more and still teach them the value of the long-term savings, investing and the importance of giving to their special charities.

Great blog John, thank-you for keeping us all on our toes!

Cheers...Amanda van der Gulik...Excited Life Enthusiast!

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For 50 Free Money Making Ideas for Kids
www.TeachingChildrenAboutMoney.com
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John said...

Amanda,

Thanks for reading and thanks for your terrific post.

John