How to Teach Your Kids Good Savings Habits

Money blogger and life-skills instructor Nicole McDonald is a firm believer in teaching financial awareness to kids at an early age. And with three children—ages 7, 9 and 12—she has no shortage of lessons to teach, especially since each of her children started getting an allowance at age 5.

“I’ve been pretty open with my kids about money and money management,” McDonald says. “I give them money to spend on things because they want stuff. But I want them to know that money is finite and if you don’t have enough, you can’t get what you want.”

That very basic lesson has taken some time to sink in—especially for her oldest, who has realized she’s an impulse shopper. “She wanted an American Girl doll and saved about $60. Then she realized she had all this money and started spending it. When she only had $20, she wondered how that happened.”

Her daughter resorted to drastic measures, sealing her savings in a jar with duct tape—but ended up scraping off the tape and breaking in.

“Now she splits her allowance and asks me to deposit half of it in her savings account,” says McDonald, who teaches life skills at two Nebraska community colleges and runs momsavesmoney.net. In addition to teaching her daughter about savings account interest rates, this has kept her from going after that money with each whim.

McDonald has been careful to teach her kids about the connection between work and earning power, by paying them for household chores and jobs like shoveling snow. And she has created other earning incentives. “With my two older ones,” she says, “if they read from a finance book and write two paragraphs about what they learned, they get $5.”

McDonald has also opened savings accounts for all of her kids, and she shows them bank statements so they can see how much they’ve saved. When her daughter won $1,000 in a contest, the money went into a certificate of deposit (CD), giving her an opportunity to learn about the power of compound interest in the high interest savings vehicle, she says.

While McDonald makes monthly contributions to the kids’ 529 education savings accounts, she considers paying for college a joint venture. “Hopefully they’ll get scholarships or financial aid,” she says. “But if they don’t, they can go to community college and transfer. We’ll try to impart that your college choices should be within your financial means.”

Another way that she taught the kids about saving was a family “No Spend” month, when they all agreed not to purchase anything beyond the absolute necessities. For kids used to getting money for snacks, it was very powerful exercise. “They didn’t like it. And they remember it,” says McDonald.

The experience was part of an ongoing lesson about fiscal responsibility, she says: “I hope they learn to live within their means and save for their future. By teaching them about ways to save, I want my kids to live comfortably with what they make.”

Seth Kaufman is a journalist and ghostwriter based in Brooklyn. His work has appeared in the New York Times, the New Yorker online and many other publications.