How to teach your kids about 'Saving money to spend later'
You may feel ‘saving money to spend later’ is a simple concept that you are already teaching your kids, however, do you really appreciate the importance this lesson will have on your kids’ financial future and do you know interactive ways to support your kids to understand it? You will by the end of this blog.
This is the second of a three part series to help parents teach kids about savings:
Saving money … to make money, i.e. putting money away which earns a return and increases your wealth (read)
Saving money … to spend later, i.e. seeing something you want and saving up the money to buy it in the future
Saving money … by spending less, i.e. finding discounts or a cheaper version of the things you want (read)
In this blog, saving money to spend later, I provide ways to explain the benefits of saving to kids via a simple game, a real life example, a short story you can read them and show how you can help reinforce this lesson using pocket money.
The third blog, how to teach your kids about ‘saving money by spending less’ will follow soon. Make sure you have subscribed so you don’t miss it.
The importance of 'Saving money to spend later'
The first thing I want to say on this topic is please DON'T give your kids a loan, e.g. "I'll buy this for you now but you won't get any pocket money for 3 weeks".
Making kids wait teaches them to save. We live in a world where many people are in debt as they want things right now. We need to make sure our kids don't fall into that trap.
By waiting and saving for things they want we teach them to delay gratification.
“People who delay their gratification for a later day or time, end up having more success in all areas of life; financial, health, career and relationships.”
Many studies show those with the ability to delay gratification are better off than those (with a similar economic background) who can’t. The most famous of these is the Stanford Marshmallow Experiment:
In 1972, a team led by psychologist Walter Mischel carried out a study where a child was left in a room with a marshmallow for 15 minutes. They were told if they didn’t eat the marshmallow in the allocated time, they would get two marshmallows as a reward. They repeated this study with many different children.
Researchers followed up with the children later in life. They found those who were able to wait longer tended to have better life outcomes, as measured by educational attainment, body mass index (BMI) and other life measures.
Essentially, we need to teach kids to have the willpower to resist instant gratification.
Game - Try the marshmallow experiment with your kids.
Get them to sit in a room with their favourite treat (it doesn’t have to be a marshmallow).
Tell them that if they can sit there for 15 minutes without eating it, they will get two of the treats as a reward.
Set the timer and see how they get on.
Don’t worry if they eat the treat. They aren’t destined for a life of failure. Delaying gratification is a skill which can be learnt which I discuss later.
For those of you interested in finding out more about the awesome powers of delayed gratification I strongly recommend the book ‘The Marshmallow Test’ by Walter Mischel.
In a world where the desire (social media pressure) and ability (easy borrowing and single-click spending) to get instant gratification is increasing, it is now more important than ever to make sure our kids master the skill of delayed gratification.
Real Life Example - My parents showed me delayed gratification
I’ve been fortunate enough to see the power of delayed gratification in action.
Both my parents worked and progressed well in their careers. As their wealth increased they could have bought a bigger house. Instead they stayed in the same house (with new modifications) for over 20 years. The benefit of this approach was that as soon as my sister and I were old enough to move out, they left their jobs and retired early to the sunshine. My mum’s peers are just retiring now, some 17 years after my parents did. They could afford to do this as they saved all the money most people would have spent on moving to a bigger house.
My wife and I have this same mindset, we now save and invest so we can retire as early as possible if we choose to.
I often speak to my girls about their grandparents, how they retired early and now live in the sunshine due to them delaying gratification.
Helping your kids delay gratification
The above shows kids delaying gratification is very important but now we need to consider how to learn this skill (and it is one you can learn!)
Quiz question for you:
Which of the following was shown to be the best way to help kids delay gratification?
A. Make the process of saving fun and memorable
B. Suppress their thoughts about what they are saving for
(scroll down for answer)
Answer B. - The conclusion of studies showed suppressing thoughts about the reward is the most effective way to delay gratification.
Therefore, if you want to help your kids learn to delay gratification you need to find ways to help them avoid thinking about the thing they want.
This could be as simple as:
Avoid taking them to the place where they see the reward (as much as practically possible)
Don’t proactively discuss the reward with them
Change the subject to other topics when they bring up the reward (keep the new topics positive though).
You may think these actions are a bit of a ‘cop-out’, however, they work.
Ultimately you want your kids to learn to delay gratification themselves, so help them as much as possible and when they are old enough explain to them why you are doing this so they don’t just think you are being a mean parent that doesn’t listen to them.
I appreciate when kids really want something it can be hard work as it seems like the pestering never ends. Hopefully the above helps. Remember, the short term pain of putting up with pestering will have long term benefits!
Story - to teach your kids delayed gratification:
The above looked at helping your kids delay gratification. We also want kids to learn the concept of delayed gratification so they understand why you are not just giving them what they want now.
The story I tell my daughters uses the analogy of seeds and trees (similar to my other blogs).
Two friends, Sam and Ali who were each given a seed to plant so they could grow a tree.
Each day they both returned to the place they planted the seeds to check on their trees.
After only a few days Sam grew frustrated as there wasn’t anything to see.
Then their friend Tony ‘the balloon guy’ came along and said he would give them a balloon to play with in exchange for the seed they had planted.
Sam thought about the joy of playing with the balloon compared to watching the tree grow. Sam went ahead and got the balloon from Tony.
Sam was so excited, running around playing with the balloon and having so much fun.
Ali was also tempted to get a balloon but decided not to and kept waiting for the tree to grow.
Soon enough Ali’s tree grew and started to produce seeds. At that point Ali found Tony ‘the balloon guy’ and gave him just one of the seeds in exchange for a balloon to play with.
Ali went to find Sam so they could play with their balloons together. However, Ali found that Sam’s balloon had burst. Sam had no balloon and now no tree or seeds. “I wish I had waited so I had a tree like you Ali” said Sam.
As Ali’s tree was now producing many seeds, Ali offered Sam a single seed. Sam then needed to decide whether to exchange it for another balloon or plant it and wait for a tree to grow.
Sam thought about the past and decided to plant the seed and wait rather than getting another balloon straight away.
After some time, both Sam and Ali had their own trees and happily played with their own balloons!
Pocket money - creating a habit of ‘saving money to spend later’
The above has hopefully helped your kids appreciate the benefits of delayed gratification. That’s great but we now need to make sure this isn’t a one-off lesson. Unfortunately we forget a lot of what we learn pretty soon after we learn it. Therefore we need to find ways to bring these concepts into our every day life.
As mentioned in my previous blogs, Pocket Money is the most underrated financial education tool there is. Pocket money can really help our kids learn and create life changing habits, including how to save money to spend later.
To help your kids learn delayed gratification via pocket money:
Get them to think of something they want which they will be able to afford if they save most of their pocket money for 4 to 8 weeks (remember they should save 10% to 20% for the very long-term)
Each week get them to check on the progress of their savings. Try to keep the conversation about the savings rather than the reward, e.g. you’ve saved £10 in two weeks, so it will take two more weeks to get to the £20 target.
When they do have enough money, make a big deal out of how well then did by waiting and saving their money.
This gives them an opportunity to master the financial superpower of delayed gratification. It’s a superpower which many people don’t have so they should feel special that they are able to do it.
As mentioned in my other blogs, using pocket money to help them save also gives you the opportunity to talk to your kids about money. Having these conversations will help reduce the ‘taboo’ status of money which means in the long-term your kids will feel more comfortable to ask for help if they ever need it, something many people today are afraid to do.
There you have it. Hopefully your kids will learn the power of Delayed Gratification and benefit in their future lives once they master this (learnable) skill.
Actions: Try the marshmallow game, read your kids the balloon story and, use pocket money to help your kids start ‘saving money to spend later’. You’ll be helping them become Financial Superheroes before you know it.
If you found this blog useful then please remember to share to help other parents.
Thanks for reading!
Other blogs / links related to this topic:
Pocket Money - the most underrated financial education tool
'The Marshmallow Test' by Walter Mischel - recommended book
Games and books to help teach your kids about money click here