Here are some crucial steps for starting that process:
- Set up a savings account. Parents should open a savings account with their child to teach them about money management skills. Children can always spend some of their money, but help them learn that it’s important to always save some. Even a few dollars a month can have a big impact over time and help create a habit that serves them later.
- Save for a goal. Help your preteens set goals for savings—say, buying an expensive video game console or a pair of shoes—to increase motivation. Telling your children about a savings goal you had—a new TV for the family, for example—can help them better understand how they can benefit themselves. Then explain that they can use the money in their savings for those items. And remind your preteens that the money in the savings account isn’t for day-to-day purchases. Discuss the time value of money with children and how it grows over time.
- Discuss the power of compound interest. You don’t need sophisticated financial knowledge to teach your children that their savings will earn interest—and those earnings in turn generate more interest. That’s compounding. You can use an online calculator to demonstrate how compound interest works on even a small amount of savings.
- Teach preteens how to monitor and manage their accounts. Parents should consider scheduling regular times to sit down with their preteens and review their account balances and activity together. This activity helps create a habit of paying attention to their accounts and seeing how close they’re getting to their goals or remind them to continue saving vs. spending.
- Discuss wants versus needs. Children often need help understanding the difference between necessary and discretionary purchases. Encourage them to determine whether they truly need something, and explain how forgoing small purchases, such as pizza or music downloads, can help your child save up for more important purchases.
And remember, healthy spending and savings habits can be learned. Taking the time to talk about spending and saving can help set up your preteens for success. Learn more about savings account options or sit down with a Personal Banker for more tips on starting your preteen on a path toward healthy money management.