How to save money is a crucial financial lesson some parents teach their kids.
Two-thirds of respondents to a recent survey by Creditcards.com said their parents taught them about saving, though only 22% said their parents taught them how to invest. The site polled 2,964 parents with children under 18.
"It's important for parents to have regular conversations with their kids and look for points in time where kids are showing interest in finances and taking advantage of it," says Paul Golden, managing director of media and communications for the National Endowment for Financial Education.
So teaching children about money and financial responsibility is key. After all, parents are the No. 1 influence on their children when it comes to finances. And being a saver matters: Forty percent of people don't have $400 to handle an emergency expense, according to the Federal Reserve. America is arguably in the midst of a savings crisis.
Forming good savings habits early on can save you a lot of stress down the line, and it can also make a big impact on your wealth as you age. With that in mind, here are five ways experts say parents can set their children up to be savers.
Having an allowance can teach kids how to budget and save money, says Golden. One good way to do this is to give kids a fixed sum of money on a consistent basis: "What you're doing is trying to create what it's like to have a paycheck," he says. "If they spend all the money within three days of receiving an allowance and run out, then they have to wait until they get paid again."
If you have several kids at different ages, be mindful of their stage of life and how much they may need. As they get older and develop better money management skills, you may want to consider increasing their allowance.
It can be beneficial to pay children for work around the house, says Gregg Murset, CEO of BusyKid, an app that helps kids earn, manage, and save money. "You can use chores to incentivize your kids to earn money in a meaningful and productive way."
He suggests paying more for time-intensive chores like washing the car or cleaning out the garage. That way, kids can learn how work pays off in the real world, and they can learn practical life skills, too.
Setting savings guidelines for money gifted to your kids for celebrations like birthdays or bar mitzvahs, or even perhaps a visit from the tooth fairy, can be a great chance to teach them how to manage money, says Golden. You could start by having your child set aside 25% or more in a savings account.
If your child receives $40 for a birthday, try having them automatically put $10 in savings, for example. Developing that habit early will condition your kids to save a portion of whatever they bring in, says Golden.
One way kids can learn how to save money is through opening a children's savings account, says Golden.
Having checking accounts or savings accounts can help kids feel ownership of their money as they watch their savings grow. Having checking or savings accounts of their own can also give kids an opportunity to learn how to use an ATM by depositing and withdrawing money, and it can be a way to introduce kids to the concept of an interest rate and how compound interest can work for them.
It's usually not difficult to open an account. However, he says, parents should be cosigners on the account and monitor transactions.
Golden suggests sending older children into the grocery store with $5 or $10 and a list of items to buy, like milk and eggs. Then see if they veer from the list and buy something like candy.
"This is an example of learning [the difference between] needs versus wants," he says. Letting kids make spending slip-ups that you can easily correct and derive a lesson from can prevent them from making spending and savings mistakes as young adults.
When your child asks about money, Golden adds, take the time to address their questions, even if your financial situation isn't perfect.
"You don't have to act like you have all the answers," he says. "Good lessons can be learned through the mistakes you've made. If you don't think you're in a good place financially, don't shy away. Maybe you'll become aware of ways to change your own situation."
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