7 Ways to Encourage Your Kids to Develop Good Money HabitsA few weeks ago, I wrote about how low interest rates have made it difficult to convince any of my kids -- especially my 9-year-old daughter -- to open a savings account. While many of you agreed there's a problem, some of you believe I'm misrepresenting what savings accounts are for.

"S" Is for Savings ...

"You are right about [saving] being a good habit," wrote reader demosphnes, "however the point of placing money in a bank saving account is to build up a pile of cash to meet your needs. Investing is an entirely different manner and for that nobody should use a saving account at the bank."

Fair enough. I am more concerned about teaching my kids the act of saving than I am about finding the best rates, especially now that safety nets are under threat. Chances are, they're going to have to fund not only their own retirements, but also a large portion of their health care, insurance benefits, and more. They won't be able to do that if they don't know how to save.

... and "I" Is for Incentives

On the other hand, is it fair to tell a 9-year-old to save just because it's good for her? Isn't that just a little like telling her to eat her veggies? Incentives matter, and in saving and investing there's no better incentive than the prospect of a great return. Here are seven ideas for helping your kids earn more from putting their money to work:

1. Open a custodial brokerage account. History shows that investing in stocks beats investing in cash, especially over the long term. Small-scale broker ShareBuilder has an automated program that allows customers to invest weekly or monthly for just $4 per transaction. Custodial accounts are also available.

2. Create an eBay business. Entrepreneurs such as Microsoft's (MSFT) Bill Gates, Berkshire Hathaway's (BRK.A)(BRK.B) Warren Buffett, and Google's (GOOG) Larry Page and Sergey Brin are responsible for some of the world's largest fortunes. Why not have your child invest a small portion of her funds to create a small-scale eBay store or something similar? Whether it's selling off old dolls or toys or finding a market for homemade arts and crafts, she'll collect profits with each sale, and in the process learn business lessons that aren't easily taught in a classroom.

3. Become a bank. Banking basics are just as important as business basics. How about allowing your kids to lend to you at an attractive rate? They'll get a little extra cash and an important lesson on the compounding power of interest.

4. Start a matching program. If your kids aren't yet ready to dive into percentages and interest rates, try a matching program. Open a savings account for them and promise to match their contributions up to a certain level, just as the best 401(k) retirement savings programs do.

5. Sponsor a goal. You can also use goals to boost savings. Say your child wants a new bike. Agree to pay a portion of the cost if she'll earn and save the rest. SmartyPig takes a similar approach in encouraging adults to save, but with a social twist: Publicly commit to a savings goal and earn an above-average rate on your balance as peers watch and cheer you on.

6. Embrace the outlandish. Our 12-year-old son would go to Australia on his own if he could. He's too young for that -- obviously -- but what about solo flying lessons? We'd consider it if he saved most of the money needed. Tease the idea of access to the previously unattainable as a reason to sock away cash.

7. Use the Internet. Finally, consider creative alternatives. Kickstarter allows anyone to sponsor creative projects -- in subjects such as art, fashion, and technology -- some of which come with neat rewards. Agree to be your child's proxy for pledging support, but only if they first save the funds to make good.

Savings is a lifetime habit worth cultivating in our children. As parents, we've all got to do our part. What strategies are you using? What's worked? What hasn't? Please use the comments box below to weigh in.



Motley Fool contributor Tim Beyers owned shares of Berkshire Hathaway and Google at the time of publication. Check out Tim's portfolio holdings and past columns. The Motley Fool owns shares of Microsoft, Google, and Berkshire Hathaway. Motley Fool newsletter services have recommended buying shares of Google, Berkshire Hathaway, and eBay, and have recommended creating a bull call spread position in Microsoft.

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8 Comments

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rogsuehull

When my kids were eleven I put them on a monthly budget. They got a monthly paycheck and got to spend it as they pleased. They soon figured out how to not run out of money and buy their clothes at the resale shop. They both turned out to be frugal savers who have accumulated considerable wealth. Handing out money to your kids as they need it does not work. The earlier you start the better. Their college budget was fixed and they had to use their wits to get more.

September 04 2012 at 10:27 AM Report abuse rate up rate down Reply
NKS55S

The children of today need some old fashion disipline and parenting first of all the politicly correct parenting isnt working. Take away the cell phones , i pods that are making then stupid and really is a very expensive unneeded entitlement that the so called parents make excuses for their children to have by covering up for their own stupidity. Some of us LIVES WITH OUT THESE MODERN JUNKETS and survived for 100 yrs and developed survival skills and real brain power not battery powered brains that when tunred off the children do not know what to do at all how moronic is that parents.

September 04 2012 at 10:04 AM Report abuse rate up rate down Reply
Skip

I guess if you are very, very, very rich......this might work for you.....What real and common audience are you speaking to? OMG!

September 04 2012 at 7:50 AM Report abuse rate up rate down Reply
kitharris1

buy blue chip stocks that return a healthy dividend for them with their money every so often. but let them spend a portion so they don't become like scrooge mc duck. some times it's hard for we tight wads to spend a nickle!

September 03 2012 at 12:54 PM Report abuse +1 rate up rate down Reply
kitharris1

when i was young, i bought united states savings bonds with my earned wages and saved them for my college education. between those bonds and working 3 jobs while in school and working summers, i graduated broke, but debt free! it was a great habit that my parents helped me establish and has allowed me to retire early.

September 03 2012 at 12:48 PM Report abuse rate up rate down Reply
kitharris1

what a novel idea that people would have to pay for their OWN retirement, healthcare, insurance and more in the future.. i am paying for EVERYONE'S right now! sounds like our kids are going to have it easy!

September 03 2012 at 12:45 PM Report abuse +1 rate up rate down Reply
Rita

I remember reading your last article. I left a comment about my family matching our savings funds. I posted under a different account, but I'm sure I suggested this very idea to you:

4. Start a matching program. If your kids aren't yet ready to dive into percentages and interest rates, try a matching program. Open a savings account for them and promise to match their contributions up to a certain level, just as the best 401(k) retirement savings programs do.

But it only works if your folks are loaded! If they're broke, it won't do much good. I believe I also suggested that kids open up their very own Roth IRA as well. Start them young! They can use the money for college, and for a first-time home purchases. I believe in the last six month I received 14.82% interest for my Roth IRA account. Not bad! Yes, it does include Apple. There are not too many places where you can make that kind of interest. Check out Troweprice.com.

September 01 2012 at 7:54 PM Report abuse +1 rate up rate down Reply
cpo1514

Huffy... you blew it with this article..... kids may join the TEA Party after reading this.......

What will the Occupant say????May cut your funding .....

September 01 2012 at 8:24 AM Report abuse +6 rate up rate down Reply