Can anyone convince kids to save $$$?

Photo by Andrey Kiselev |            

Why are so many elementary, middle and high school students reluctant to save money? As the old sayings go, it seems to “burn a whole in their pockets” or it “runs like water through their hands.” Piggy banks are rarely revered by today’s kids.

What does it take to get teens to set aside some cash?

One of the best ways to emphasize saving is by giving young people cash gifts. However, as most aunts, uncles, parents and grandparents discover, it’s much more difficult to teach frugal finances to children after age 13. A few relatives who write checks for birthdays, holidays and special events grow frustrated when they find out how fast the younger generation spends monetary gifts, often not saving a cent for later.

One grandfather discovers a good way to pass on saving habits

Determined to teach his grandkids to start setting aside some cash, one grandfather came up with a unique plan. He opened savings accounts at his bank for each of the children. He explained to them that he’d send them checks with half the money for their big events, such as birthdays or holidays. He told them that he would deposit the other half in their accounts. Then, he put the rules for withdrawals in writing and provided each child with a copy.

He told the kids that he’d have to approve all requests for withdrawals from their accounts. He added that the most they could withdraw before turning 21 would be half of their account total. The other half would remain in the bank as a rainy-day fund for their futures.

Grandpa also limited withdrawals to purchases that would positively impact their lives. In other words, the kids could only spend their money on things like books, summer camps, educational games, toys or equipment, or cultural activities, such as travel and theatre. 

Grandma handles the saving challenge with her grandkids a different way. As each one is born, she opens a new Roth IRA for herself, naming that child as beneficiary. On all their special occasions, she gives them each an inexpensive token gift and puts the rest into their Roth IRAs where:

  • The money will grow through the years.
  • Limited amounts of cash could be withdrawn in five years (or just in time for college).
  • Each child would eventually inherit the rest of their Roth account as the beneficiary.

Waiting five years may seem like a lifetime for young people, but most financial advisors tell their clients that any investments should be left to grow for at least five years. Since money put into Roths can be invested for earnings, keeping some there for at least five years will yield bigger gifts in the long run.

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Ronald Van Surksum, CFP               

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For permission to reprint:                                        02-15-22