Saving

3 money lessons you can teach your teenagers to help them become 'supersavers'

Myelle Lansat@myellelansat
Twenty/20

Many "supersavers," or people who put an impressive share of their income away for retirement, give credit to their parents, accord to a 2019 survey from Principal, a retirement account provider.

Over three-quarters, or 80%, of supersavers cite their parents as being the No.1 influence on their saving habits. And while 80% also say their parents were good at squirreling away cash, only 35% say their parents had guidelines related to finances.

The survey defined "supersavers" as Gen Xers, millennials, or members of Gen Z with Principal 401(k) retirement plans who saved at least $17,100 during 2018 — more than 90% of the annual $19,000 limit — or who deferred more than 15% of their salary. These aren't all big earners, either: Nearly half, or 48%, of respondents make less than $100,000 annually.

"Based on the research, [kids] emulate what they see. But I think parents can play an even more proactive and instructive role, since [kids] aren't getting [a financial education] in school," says Jerry Patterson, senior vice president of retirement and investor services at Principal Financial Group.

Here are three great money lessons you can teach to your teens to help set them up for saving success.

1. Open a savings account

It's important to get your kids into the habit of saving early, says Patterson. He recommends discussing saving habits, and even the importance of prepping for retirement, when your kids are about 15. Supersavers generally agree: Over 70% say students should learn about personal finance in middle school or younger, and 25% say the lessons should be taught in high school.

"Once you've started with the habit of saving when you're young, you start seeing what saving [money] actually does for you," says Clark D. Randall, a certified financial planner and the founder of Financial Enlightenment in Dallas, Texas.

Randall says parents should consider opening a savings account for their kids after having an initial talk about the importance of setting money aside. Then you can put the account to work. Let's say your child is paid $20 from a job or allowance. You can take out 10%, or $2, and add it to the account.

Teaching teenagers to save money when they earn money will motivate them to not only save as an adult but also be proactive about prepping for retirement, says Randall.

Read more: 5 ways parents can set up their children to be savers

2. Set up a mock portfolio

Teaching your kids about investing basics can set them up to be supersavers down the line, since showing kids the value of patience can help them be a disciplined investor and build wealth.

You can engage your teen in investing by setting up a mock investment that can be tied to their interests. For example, if your child likes cars, you can create a basic mock portfolio that includes individual stocks of auto companies. Then, have your child dictate how much "money" to invest in each stock and let them take it from there.

Having a fake stake in a real interest can open the door to a conversation about what it means when stocks rise and fall and why it's important to stay the course, even if the market is bumpy.

Read more: 3 fun ways parents can teach kids about investing

3. Talk about the consequences of debt

One way to help kids understand the pitfalls of borrowing money and potentially going into debt is by setting up a mock payment plan for something expensive that they want.

Let's say your high schooler wants a new pair of shoes that cost $50. You can offer two payback methods: all at once, or once-a-month payments of $10 with a 20-cent interest charge each month. If they choose once-a-month payments, they will pay $51 over all, which is $1 more than the original price.

Some experts even recommend giving your teens authorized access on your credit card before they turn 18. Monitor what's going on, but give them some room to experiment. Making small mistakes, like overspending, can be a valuable lesson.

All of this can underscore the importance of being responsible and saving so that you have enough money to afford your goals, including a comfortable retirement.

If you're just starting to talk about personal finance with your teenager, Randall says it's important to set an expectation of saving money when you earn money. He says supersavers start the habit at a young age and find excitement in watching a savings account grow over time: "Anytime we do anything in life and we see positive results from it, it makes you want to do more of it."

Read more: 3 simple ways parents can teach kids about borrowing and debt

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