Five Lessons that Five Dollars can teach your child

Children do not have the experience or maturity to comprehend the benefits and impact of saving — or not saving — their money. Without the responsibilities of working and balancing a checkbook, they may not understand that money is not an unlimited natural resource. They do not realize how much it costs to feed a family, take a vacation, or purchase new clothes every season for growing boys and girls. To a young child, having $5 means having a lot of money, and $100 most certainly makes you rich. Patiently saving money to purchase a new computer or gaming system can be a daunting feat for most anxious kids.

Financial experts agree that fiscal responsibility and solvency begins with a proactive and knowledgeable attitude. Mary St. Lawrence, certified financial planner and spokesperson for the Financial Planning Association, urges her clients to include their children in family financial planning sessions. “Letting children know that money requires managing gives them a great start,” she says.

With just five dollars, you can begin to instill in your child sound financial planning skills and knowledge that will be beneficial throughout his entire life.

1. Does the bank eat my money? One of the most powerful ways to teach children to save money is to let them see money accumulate. A child under the age of 6 might not fully understand that taking his birthday money to the bank is in fact a way of “saving” it. Unless his savings account yields a high interest return, St. Lawrence advises letting children see their allowance or birthday money accumulate before depositing it in an account.

“Cashing a relative’s check, adding it to his other money, and then depositing it is a great way to develop the concept of saving,” she says. Children do not always understand the value of a check. Taking them to the bank to cash it, then discussing its value before making the deposit makes them part of the process, and helps them to realize that checks do not represent an undetermined or unlimited amount of money. “This also helps children realize that the bank doesn’t ‘take’ their money,” St. Lawrence adds.

2. Set a good example. You’ll teach him a valuable lesson as well as help him pad his own nest egg by allowing your child to physically see you save money. Certified public accountant and business owner Richard Kessler suggests his clients establish a “home savings account”. “When a child sees you add your loose change or just five dollars a week to a milk jug, shoebox or plastic container, he understands the concept of ‘building’ savings. It’s important that children have a tangible example to attach to this concept,” explains Kessler. A once-a-month family trip to deposit the proceeds of your home savings account is another option to teach children the process of saving.