To teach, make a game of saving

In teaching your kids about saving, consider this: Financial institutions, governments and employers often provide incentives for people to save. Financial institutions pay interest on savings deposits, governments provide tax incentives for college savings and retirement, and employers often match employee retirement contributions with their own funds.

The act of saving comes with a reward, and that fact can be especially useful for you in your financial lessons with your children.

When you’re first building up the habit of saving in your children, it can be helpful to keep your own bank in your home. A financial statement can be abstract for a child, so it helps to start with real money that they can see.

When kids want to save from their allowance, you can portion out that money in cash and keep it in a set of piggy banks in your house. Designate a drawer as your homemade financial institution, and keep it there while your children are growing. You also can write out records of the deposits made, to give your child a closer experience to a real savings account.

But to really encourage your kids to save, you can set up a game of paying interest on their savings. The more they save, and the longer they save, the more they earn, just as they would as adults. When they see that extra interest added to their piggy bank, it can drive the savings lesson home — that they can both reach their savings goals and earn money, if they build up savings habits.

Pay basic interest. Keep the terms simple, and since you’re working with small amounts, be generous. You want a meaningful incentive, something that your child can see as a tangible reward at the end of the month. You can start by paying ten percent interest every month, and experiment from there.

Pay more interest for savings held longer. In financial institutions, CDs and money certificates provide higher yields, in exchange for keeping that money held at the institution for a specific period of time. You can recreate that experience for your child, by paying higher interest, in exchange for holding onto a certain amount of savings for a longer time, such as three months.

You’re giving your child a choice that they’ll also make in adulthood — choosing between short-term savings and long-term savings. Teaching the discipline to save for the long term will help them later in life, not only for major purchases, but also for long-term investing and retirement.

Pay more interest for certain kinds of saving. In adulthood, we can put our money into tax-advantaged retirement accounts and college savings accounts for our kids. We also can put our money into retirement accounts that our employers match. We recognize those incentives when we make choices to save. You can duplicate this process for your child, by reviewing their goals with them, and marking out specific goals that you would provide extra incentives for, if they choose to save for them.

In creating a system of rewards for your children, you can encourage savings from a very young age, and make financial learning fun. The lessons you teach now can have a significant influence on your children, long into adulthood.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 19 years experience in retail banking and with financial institutions in Guam and Hawaii. You can email him at


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