Financial literacy is a critical life skill, yet so many people grow up without a basic understanding of how to handle money. Good habits, laid down in childhood, can have a positive long-term impact and are helpful to prepare for home ownership in adulthood.

Here are some suggestions for teaching your child the importance of saving.

Purpose of saving

Begin by talking to your child about what it means to save money. Even a youngster in kindergarten can learn. At this age, your son or daughter will know the purpose of money since they've likely seen you purchase items using cash.

They may also have accompanied you while you’ve done your banking. Take this opportunity to explain about saving up until you have enough funds to buy something. Make the experience concrete by showing them how you access your cash from the bank ATM or teller, and then use it at the store. 

Start small

Help your child learn the savings habit by buying them a piggy bank and giving them a few coins to save in it. Suggest that they put other cash they receive into their piggy bank. This might include gift money from family on their birthday or earnings for doing small chores at home.

You may want to start giving them an allowance when you think the time is right. Helping them count up their savings is the perfect time to demonstrate how money grows when it’s saved. This is also the opportunity to ask them start to consider what plan they have for their funds. 

Earning interest

When the cash in the piggy bank starts to accumulate, it’s time to introduce your son or daughter to the world of banking. Take them to the bank to open a youth savings account.

Use a passbook to illustrate how their money earns interest, and grows faster, in a savings account. Your child will feel grown up to be have their very own bank account and be encouraged to keep saving. As your son or daughter gets older, you can discuss the benefit of compound interest.

Percentage of earnings

While your offspring might have dreams of saving up for a big purchase and emptying out most of their bank account, talk to them about the importance of always having some money put aside. A good rule of thumb is to keep 10% of the funds they receive in savings for a rainy day.

This is an excellent goal that will serve them well as they grow older, and enter adulthood, since it can be the basis for a solid emergency fund throughout their life. Similarly, it’s timely to have a discussion with your child about donating some of their money to charity, and 10% is a reasonable amount here as well. This will show them the value of helping others, and instill a spirit of giving early on.

Spending wisely

You may notice that your child seems to have an inborn tendency when it comes to handing their funds, despite any example you’ve tried to set. Some little ones appear to be born savers; others can be natural spendthrifts who want to part with their cash almost as soon as they get it for the latest toy, while a third group seems to be happiest when they’re buying treats for others. Whatever way they lean, work with your child to explore the reasons they have for their actions, and guide them in spending wisely.

By familiarizing your child with the significance of saving as soon as they’re able to comprehend, and increasing their knowledge as they’re ready, you’re raising a lifelong saver who understands the value of money.