How to Encourage a Savings Habit
Once your teen understands why saving is important, here’s how to support them in creating a lifelong habit.
Discuss wants versus needs.
Understanding the difference between wants versus needs is a key part of saving. Your teen needs clothing, but pricey designer labels are probably a want. They might need a computer or tablet for homework but want the latest model with all the bells and whistles. Explain that it’s OK to spend money on wants, but it shouldn’t mean giving up something you actually need. And if you’re going to spend money on a want, it should be something you really want, not a fleeting interest or a fad.
Set a specific goal.
Encourage your teen to save for something that excites them, whether it’s a new tablet, a skateboard, concert tickets, or something else. By working toward a specific goal, they will develop the discipline needed to achieve sophisticated savings goals as they mature. Have them figure out how much money they will need, how much they can save each week, and how long it will take to reach their goal. Then they can track their progress over time.
If your teen doesn’t have an item or experience they want to work towards, set a monetary amount as their goal instead. This amount should be realistic but also high enough that they can feel a sense of accomplishment at reaching that goal.
Help them stretch their dollars.
Saving money also means making smart purchases so money goes further. Before your teen buys a video game or a pair of earrings, show them how to comparison shop and look for coupons. If they’re shopping online, maybe leave the item in their online shopping cart for a couple of days while they think about it. Some online sellers send discount codes to consumers who leave an item in their cart without checking out, so this is another potential way to save money.
Also challenge your teen to find low-cost or free alternatives to some of the items on their wish list. Do they need to buy everything they want, or can they borrow it? Many public libraries offer a selection of current movies and video games cardholders can use for free.
Just as some employers offer a match on funds invested in a 401(k), you could offer to match money your teen puts into a savings account to reinforce this habit and help their money grow. In the example above, if your teen earns $2,000 per year and they put $1,000 into an IRA, you could make a matching contribution of up to $1,000. Or if your teen is saving up for a car, they might not want to buy a reasonably safe vehicle on their own, but you could match their contribution.
You could also offer rewards for maintaining a certain balance in their checking account so they aren’t tempted to spend that money. That said, allowing your teen to spend money and experience buyer’s remorse can be a helpful (if a bit painful) lesson for them to learn.