Convince your kids to save money

I tell my children they have to save 20% of their pocket money while living at home. They should save this high % because they will never again get the opportunity to save this easily and probably not at this high % once they have to pay rent or a bond and the other expenses that adults have to.

How do I convince them to do this?

Incentive: To encourage saving I give them an incentive.

The scheme works like this:
My child earns R300.00 per month pocket money. They have to save 20%, that is R60 per month every month. I open a savings account at my local bank and deposit the R60 every month into that account and give my child the R240 balance as his pocket money. At the end of the year, my child has saved R60 per month for 12 months, a total of R720. According to the incentive scheme I must give my child 50% of their savings, that is R360.00. My child now has a total saving of R 1080, add the interest they earn from the bank and your child has saved approximately R 1100 in only 1 year from a pocket money of only R300 per month.

The first year is the hardest, but you as the parent should withhold their saving portion and deposit it for them. Once your child has received their first years saving bonus an addiction starts building.

This addiction grows stronger every year. Start saving from a young age, and what is learned from childhood, will become normal adult behaviour. Try encouraging them to spend only 50% of the saved amount on something special at the end of the year and save the other 50% towards next year. As the amount grows exponentially, because it will, they feel more proud of themselves and want to save more and more.

You must keep in mind that you are still the adult and that you should still be controlling where their saved money is kept and how much interest they earn while trying to maximise their gains.

Start out with a savings account at your local bank. When the savings reach R5000 start looking for alternative places to keep their money. Compare investments and pick the investment that earns the highest interest rate but is still a low risk product. Unit trusts, investment policies and fixed deposits pay a higher interest rate than an ordinary savings account and are all good options.

Remember to keep a balance in their savings account for their 50% spend at the end of the year as it can be tricky and costly to move money from higher interest rate accounts for short to medium term spending.