Permanent Value

Week in Review 10/14/13

Bruce Doole
October 14th, 2013

Grooming Better Savers

Almost every day presents an opportunity to help your children understand the importance of good saving and investing habits. Though modeling responsible financial behavior is probably the most effective teaching tool, here are four additional things you can do.

Don’t assume
Remember that younger children and even teenagers often don’t grasp the cost of things, whether it’s an everyday purchase or big- ticket item. Chances are that a sizable gap exists between a child’s definition of expensive and a parent’s. Talking in specifics about what a computer or a car costs, and relating those amounts to the effort required to earn them, can make an abstract concept real and reinforce the actual value of a dollar.

Find teachable moments
Childhood affords many opportunities to hone budgeting skills and cultivate impulse control. Before your family vacation or a trip to the mall, talk to your children about how much money they will be allowed to spend. When it comes time to make a purchase, help them weigh the pros and cons of their decision — and remind them of the effect it will have on their budget.

Structure matters
The majority of adults allocate their money to short-term, medium-term and long-term mental accounts or “buckets.” Children should be encouraged to do the same. Sorting their finances into categories might make it easier for them to see how their money is growing and encourage them to save, even though they may not want to.

It’s never too soon
Einstein marveled at the miraculous effect of compounding interest and, when presented with its potential impact, children may too. When their piggy bank is full, why not take your child to the bank and help them open their own savings account? When your child is old enough to have an after school job, have them put a portion of their monthly earnings into a 529 account.

Think about introducing your child to an advisor just before or soon after they’ve graduated from college. The more information and responsibility you give your children early on and the sooner they see results, the more equipped they’ll be to tackle financial challenges as adults.

©2013 American Funds Distributors, Inc.