It’s never too soon to start saving. Generally even if you double your deposits at a later date you may never catch up to people who started saving earlier. Introduce your children to good saving and spending habits around the time they start school.
Pocket money: 6 to 7 year-olds can be encouraged to spend a little of their pocket money now and save the rest for something they really want, discouraging instant gratification and enabling them to experience that rewarding feeling when you purchase something you’ve been longing for.
Allowances and earnings: some families introduce allowances for their children for helping with household chores. This is an opportunity to start talking about saving and investing. Kids can be encouraged to save say 10 or 20% of their allowance, and then choose to spend or save the rest. You could also incentivize them by doubling the amount they choose to save. By the time they become teenagers their economic understanding and activity increases.
Introduce investing concepts and the power of compound interest:
as your child begins to earn more money with a part-time job it’s a good time to introduce them to a bank! A savings account encourages good money management practices. When money is given as a gift for birthdays it can be deposited and lessons learnt about compound interest.
Get teens and young adults investing in shares: introduce the concept of investing by encouraging them to choose a company that owns a brand they’re interested in…it may be sports related, a games manufacturer or owner of a fashion label. Look at that company’s performance over a few months and consider the reasons why there may have been growth, a fall or fluctuations in the share price.
Suggest a company whose products or services they use, that appears to be growing and has scope for further growth. This encourages an analysis of the market and target audience. It also helps if it’s a company that they feel passionate about, which will encourage share tracking and this can be related to activities which the company may be engaged in or external factors affecting the company.
There’s so much that can be learned about economics and business through selecting, investing and tracking a small share portfolio.
Be a good role model: your attitude towards saving and spending are likely to become theirs!
Good savings habits pay good dividends for a lifetime. Don’t let your children become adults who wish they’d started saving sooner.
Peter Vickers, Chartered Accountant and Tax Specialist based on the North Shore.