Teaching Good Savings Habits in Kids: The Missing Link

Marshmallows and savings habits might have a lot in common.

A Stanford University study, led by Dr. Walter Mischel, highlighted the power of delayed gratification. The series of studies began in the early 1960s by examining the reactions of preschoolers when given a set of seemingly simple choices:

• They could have one marshmallow now while the researcher left the room for several minutes, or
• They could wait and receive two marshmallows when the researcher returned.

The children knew they would be rewarded for their patience if they waited.

When these same test subjects were revisited in their teens, those who waited for two marshmallows seemed to fare better than those who couldn’t resist the one enticing marshmallow. Parents reported that their teenagers, who had demonstrated patience as preschoolers, were more likely to have higher SAT scores, better handle stressful situations, and demonstrate self-control to achieve their goals.

A follow-up study with the same subjects, who were now in their 40s, showed that their ability to delay gratification had held up. These series of studies, known as the Marshmallow Experiment, might be a model for financial self-control.

Just like children in the study, your offspring might find it hard to wait for the rewards a consistent savings habit can bring. But, teaching children how to delay gratification for a higher pay off might be the missing link resulting in a savings habit that will last a lifetime.

Here are five ways to encourage delayed gratification and good savings habits in your children.

Let Them Earn Money

Practice makes perfect, especially for developing good savings habits. But, children first need the tools, i.e., money, to build those habits. While children aren’t old enough to work a typical job, they can still earn money at regular intervals.

Under adult supervision, a child might earn cash one weekend a month by:

• Running a lemonade stand
• Buying treats in bulk and selling them at a profit
• Creating and selling homemade arts and crafts

Add money from paid chores, weekly allowances, birthday, and holiday gifts, and your child can begin to understand the concept of an income, which is the foundation of a basic budget. Show them how their monthly earnings determine how much they can spend now and how much they need to start saving each month to reach a specific savings goal.

Set a Fun Savings Goal

Depositing money each month without a savings goal might seem pointless to a child, not to mention boring. Help make savings fun by encouraging them to set a goal to pay for a favorite toy or kid-friendly experience.

Start by brainstorming with your child. Once you’ve identified the object and cost, help them establish a savings timeframe to keep them motivated. For example, a $40 game accessory may require four deposits of $10 over four months.

Use Visual Images

A picture of the goal can serve as a daily reminder to your child as to why they’re saving instead of spending the money. Start by placing a photo or image in an open area of your home, like the refrigerator door. Then, use a glass jar, piggy bank, or savings chart to track their progress.

To keep motivation high, consider matching their savings deposits for a short window of time during the goal’s timeline. For example, you might match all deposits for two months of a four month savings goal. They’ll be excited to watch the money multiply.

 Reward Savings Milestones 

Children need regular reminders that their saving efforts are worth it, especially when their savings goal will take months or possibly an entire year to achieve. Consider celebrating when they reach a 25% savings milestone of a long-term goal. For example, if they set a savings goal of $100, reward them when they deposit $25, $50, and $75. These rewards should not be related to their goal, but should be meaningful to the child. Milestone rewards might include extended play dates, themed sleepovers, or dinner at a favorite restaurant.

Open a Youth Savings Account

 Your child can become a super saver by transferring the coins and loose bills collecting in their savings jar, and depositing them into their very own savings account. When they see how their good money habits work together with annual percentage yield (APY) and compound interest to make their money grow faster, it might increase their savings motivation.

Ephrata National Bank offers a Super Saver Club Membership account for children ages 12 and under that encourages regular deposits. This free, interest-bearing savings account only requires a $10 minimum deposit to open. To reward them for their good saving habits, your child receives a gift with each deposit of $10 or more or when they bring in a full ENB piggy bank. The account can remain open through age 18 to continue to encourage savings through the teen years.

Stop by one of our friendly branch locations and join the club today!