By age four, most kids associate the accumulation of coins in their piggy banks with the abstract concept of saving. When you save money, it is helpful to set goals for using the money. For some goals, you won’t have to save for very long before you have enough money. These are called short-term goals, and these are the money goals that most young children will have. (Tweens and teens, on the other hand, will have long-term goals to save for bigger things such as cars and college).

It can be difficult for some kids to wait before buying something they want, but this is an important lesson to learn. It may be helpful to discuss other times when your child must wait for something he or she wants: standing in line for a turn on the playground, waiting for his or her favorite holiday, or taking turns at school. Waiting until you have enough money saved is the same thing; if it’s worth it, you can wait.

If your child really wants a certain toy (or anything) but does not have enough money to buy it, explain that he or she can save their money in a safe place, such as a piggy bank or jar,until he or she has saved enough to pay for the item. Help him or her create a mini-budget for the purchase and figure out:
  • How much he or she has saved already
  • How much the item will cost (including tax)
  • How much money he or she expects to "earn" each week
  • How long it will take to save
For example, assume your child wants to purchase a game that costs $15. She or he has $5 saved already and gets an allowance of $2 each week for doing chores. Help your child figure out that he or she needs to save $10 more to have enough to buy the game. At $2 each week, it will take 5 weeks. You may want to offer the opportunity for him or her to earn more money by doing extra chores around the house. For instance, he or she could help you weed the garden for $3. It’s important to point out that if he or she spends any money on anything else, it will take longer to save for his or her goal.

Putting all of this in writing can be both helpful and motivational. For example, write each week’s balance on the calendar, and put a big colorful circle around the date when your child should have enough money to buy the game.

Resist the temptation to step in and help your child pay for the last few dollars. Not only can this set you up for a lifetime of bailouts, but it also diminishes your child's efforts and any feelings of accomplishment he or she could have by reaching the goal on his or her own. It’s okay to offer more work; just avoid the handouts.

Saving can also help children "weed out" some of their wants. Many children, for example, fall in love with a particular toy and decide they have to get it. Over time, however, they may decide that toy is not so important after all. Waiting to make a purchase is an excellent way to avoiding impulse buying and is an effective tool for helping kids determine what they really want and what they can do without (this works for tweens, teens and grown-ups as well).

Next: Teaching Financial Literacy To Kids: Saving Accounts »

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