Help their savings habit
For the last four years, we have contributed to our daughter's savings attitude by providing an incentive.
She has two accounts - one for saving, one for spending. Each time she "earns" some money or receives a cash gift, she gets to decide how much she should spend and how much should be saved.
Let's say she gets $10 for a birthday. She decides to spend $2 and save $8. As soon as the $8 deposit is made, we top up with $4 more. She sees $12 saved.
Now, here's the incentive to keep saving. If she decides next week that $2 wasn't enough, and she wants to withdraw $3 from the savings account to spend, we get $1.50 back, so the savings account drops $4.50.
If only someone would do this for adults!
The reality is this:
1. She doesn't fritter away her money - instead she makes rational decisions and looks into the future to determine the "spend" need. "How much will I need to go to Maccas next week with my friends?" for instance.
2. If she identifies a serious item or event she wants to save for (eg a laptop, or spending money for a holiday), we don't penalise her on the withdrawal, as the one-third share of the cost of the laptop would, if she hadn't been saving, likely have cost us 100 per cent anyway after giving into teenage pressure.
This way she learns ownership and commitment, and we save two-thirds of the cost of big purchases. So we still contribute to the big stuff, but have no costs for little frivolities.
3. She is saving for university study, which is two years away. The one-third we have contributed already, we would be paying out for anyway in the future, and this way we don't have to come up with all the cash on the day - it's a gradual thing, and it earns interest on the way. Plus that interest is being taxed at her low tax rate, not our high marginal rate. (sorry IRD).
We don't believe that forcing 100 per cent saving would be the answer, and the ratio of about 20 per cent spend/80 per cent save seems about right to satisfy her current expectations - but this could be different for others.
The key thing here is creating an expectation of penalty if you don't commit.
Last month she deposited several thousand dollars (one-third of it from us, yes), into a term deposit. The chief executive of the bank was in the branch at the time and he was very impressed with her savings efforts.
She has even started apologising for saving so much, because she perceives it as "costing" us the top up price. For us in the long run though, it is an incredibly cheap form of providing for her and it educates her to save.
Also working in our favour is the fact we gave her an eftpos card with her own account - not tagged onto any of ours.
We ask her to buy things from it which we are quite happy to pay for. As soon as she produces the receipt, we transfer the funds to her account. She is pretty sharp - it can happen by mobile app within 10 minutes of the purchase.
Several times this has saved us money - for instance she purchased new school sandals last month. Instead of a trip to town, she went on her own, researched three shops and styles, and went for the mid-price pair as she felt they represented better value for money.
Handing over her money, then having to present the receipt made sure the receipt was kept and the real value of the goods were embedded in her mind. This creates a link between goods and money and value, and allows her to start making discerning decisions.
Last thing: Pocket money is kept low. Including mobile phone, we pay $10 per week.
This means either one bought lunch or one movie. Everything else spent will be at the expense of not getting our 50 per cent top up.
Her smile when I have to fork out $200 because she has saved $400 is worth $10,000.
Of course, we play the hard-up parents act too, to help the charade.
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