It may sound surprising but children as young a five years old are ready to begin learning about saving and spending. From early childhood to young adulthood, you can start building the foundation to enable them to manage their finances as adults. Here are some key takeaways from researchers that you can put into practice:
Children as young as five can learn about saving.
Research suggests that children are “developmentally capable” of saving by age five. A piggy bank or savings account gives them a hands-on way to build a savings mindset. And parents take note: your child may acquire a taste for financial planning that lasts well into adulthood. The same research shows that children who grew up with a savings account were more likely to hold “diverse asset portfolios and to accumulate more savings as young adults.” That’s a powerful piggy bank!
An allowance isn’t just about money, it’s about guiding your child
Access to money from gifts or from a steady allowance, by itself, may not help your child build habits he or she will need as an adult. Research observed that giving an allowance on its own was an ineffective way to build a child’s financial skills—the benefits came when the child also got guidance on saving and budgeting along with the allowance. According to the research, “parental oversight as to how the money is spent, and parental teaching about budgeting and the necessity of saving, was found to be most effective.” So when you provide opportunities for saving and spending, talk to your children about their decisions.