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Teaching Kids When to Save and When to Spend

By Grace Hwang Lynch

Piggy BankThere's more to teaching kids about money than just giving them dollar bills. As in many families, my children sometimes receive cash gifts for birthdays or holidays, such as Chinese New Year. At first, I assumed these presents would go straight into the college savings account. But my preschooler had other ideas. The next time he saw a toy he wanted, he said, "Remember the money in the red envelope?" After a discussion, I decided that a certain percentage of a monetary gift could be used for spending and the bulk of it would be saved.

"Money lessons can and should start at the preschool age," says Laura Levine, Executive Director of the Jump $tart Coalition for Personal Financial Literacy. "[Try] to instill [managing] money as more of a habit and an attitude, rather than learning the intricacies of finance."

Here are some ways to help youngsters understand when to save—and when to spend:


  • Get a piggy bank. Or a jar—preferably one that's transparent—so kids can see the money adding up. You can draw a line to set a visual goal, and they can watch the coins stacking up. "This is more meaningful for younger kids who can't add or count that well, so they have some sense of moving toward that goal," says Levine. Preschoolers can also personalize the jar with stickers or paint, which gives them a sense of connection to their money.
  • Take them to a bank to open their account. Yes, the actual brick-and-mortar bank or credit union! This helps youngsters understand where their money is going and introduces them to the concept of financial institutions. Also, check if your local branch holds any special programs or tours for children.
  • Let them choose their own savings goals. It may sound like a good idea to have all of your child's savings go toward college, but little kids can learn a lot from setting short-term goals that are fun and meaningful to them. "The payoff isn't so far in the future that it's unattainable," says Levine. "But when they are able to do that, they go into the future able to save longer and better."
  • Consider savings and spending guidelines. Some families have children set aside a certain percentage of their money for savings. If you do so, make sure to give the kids money in small bills—and ask their grandparents to do the same when giving cash gifts.
  • Model good spending and saving habits. According to a March 2010 poll by, parents have the biggest influence on the way kids save or spend. Examine your own spending habits: if you're telling kids to be wise with money but are rushing out to buy the latest phone or trendy fashions, what message are you really sending? Also, talk to your children in an age-appropriate way about the financial decisions you make as an adult. "Instead of saying, 'We don't have money,' I say, 'Mom and Dad are choosing to save money,'" says Sue Butzow, a mother of two from San Jose, California.


  • Show them the money. Adults may transfer funds electronically and pay with credit cards, but youngsters will understand money better when they see actual bills and coins. "We have to remember that kids today don't see cash and financial transactions, as we saw when we were growing up," says Levine. "We have to consciously make sure that kids are understanding cash as the basis for learning more about money later." Even though their generation may not use cash, they need to see there's a tangible object.
  • Give them the experience of paying. If you're stopping for a snack after school or day care, give your child a few dollars and let him make his own choices. He will quickly learn the difference in the value of a small bag of chips and a large one.
  • Teach the difference between want and need. Talk to them about how commercials and advertisements are designed to make them feel a need for the item they are selling.
  • Ask them: What's it worth? When kids first get their own money, they're often tempted to fritter it away on cheap toys and 99-cent trinkets. It's okay to let them buy some shoddy items, but also point out which of their playthings last longer or hold their interest better.
  • Compare prices with older kids. If you are shopping for a new TV or computer, ask your child to help look at sales flyers or search for the best deal online. When eating out, she can help calculate the tip or figure out how much you should be receiving in change.
  • Let kids learn from experience. That includes making poor decisions. Although it's painful to watch your child run out of money, Levine says, "The best lesson is where kids start to learn the value of things and to make smart choices."

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Grace Hwang Lynch is a writer, consultant and mom based in the San Francisco Bay area. She blogs about Asian fusion family and food at

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