With the holiday season fast approaching, many parents can think about the budget and finances.
This may be a perfect time to engage children in discussions about saving and encourage them to practice making their own savings decisions.
Think about the future
The choice to save or spend money often involves considering a future time. For example, a child who wants to spend their allowance on new toys might think, “If I buy this toy, I can take it to school tomorrow to show my friend.”
But another idea could be, “If I spend all my money today, I can’t buy a treat at the park tomorrow.”
The idea that our choices are influenced by a sense of connection between our present and future selves becomes the future self-continuity hypothesis.
According to this story, people who feel disconnected from their imagined future selves are less motivated to save for their future.
On the other hand, those who feel more connected to their future selves are more motivated to save for their future.
A virtual reality study found that college students who encountered a digitally outdated model of themselves at the age of 70 putting aside more than twice as much money to retire compared to those who interacted with a digital model of their current selves.
Challenges in saving
As kids grow up, they master many skills, but saving for the future seems to challenge kids and adults alike. For example, a 2019 survey by the Financial Consumer Agency of Canada and EKOS Research Associates of 7,169 Canadians aged 18 or older between February and May 2019 found that only half of Canadian adults said they made budgets and one-third of Canadians said they would struggle to find $ 2,000 in an emergency.
In a 2019 Canadian study children determined how many marbles they should save for later on a large, exciting marble track. On average, children kept about two out of five marbles for later use.
We are in our lab developed a savings board game where kids could spend tokens at small prizes during the game or save tokens for a more desirable prize at the end. In this board game, children saved an average of two out of three tokens for the future.
Taken together, this research suggests that young children may be able to save, but there is still plenty of room for improvement.
How early can children learn about saving?
Since young children show some ability to save, early efforts to educate children about saving can be helpful.
At the age of three children save resources (such as marbles or tokens) for future use.
In our research Using the savings board game, we found that when asked about their children’s ability to save, parents reported that young children save resources, time, and space in their daily lives.
We also found that 90 percent of three-year-olds saved at least one token for future use.
So when kids are about this age, parents can start teaching and discussing simple savings concepts, such as saving coins in a piggy bank.
Not surprising, kids improve the performance of some storage tasks as they get older.
All in all, young children can be introduced to the concept of saving at an early age, but this information should be appropriate for their age.
Researchers found that getting kids budget their marbles for now and later helped them save more marbles for later compared to kids who didn’t earn a budget. This may indicate that setting a financial budget for children could be one way to encourage savings.
Remind children saving is an option is also effective. This can prompt children to think about the future consequences of spending rather than saving. For example, when parents visit a toy store, parents can remind their child that instead of spending their money, they can save it for another time. Parents may even find some of these strategies helpful.
Young children can save for the future, but often have difficulty with that. More focus on financial literacy, saving and budgeting should help children better develop savings skills, which should translate into a financially healthier society.