Teaching Kids about Saving and Deferred Gratification

Learning the power of deferred gratification is another important skill, and one that is innately tied up with learning how to save. Most children (really, most people) are not born with the saving gene. When so many animals do it instinctively one wonders what has gone wrong with our instincts. I blame it on the supermarkets. If we needed to store up food for the winter then we would all develop an impulse to save, or at least savers would be the only people still around come spring time. As it stands we are unlikely to let our children starve through winter just because they did not put up enough Skippy peanut butter in their dresser, so it appears we will need to teach them how to save and the power of deferred gratification.

We all come out of the womb appreciating gratification (and that is about all we are good at the first year or two). It is the deferred part that just seems so hard. That is the part we need to learn, so as parents that is the part we need to teach. This process can start fairly young, but it is an abstract concept, so probably the lessons won’t take root until age four or five. In the case of teaching children, deferred gratification does not mean denying a bottle so they get a bigger bottle later. (The rest of the world begs you to just please feed the hungry, screaming baby on the six-hour cross-country flight.)

As they hit that age were they develop favorite shows and snacks, the lessons can begin. One of those things they will not express a fondness for is (probably) naptime. Who would want to miss out on all the neat stuff that happens when they ought to be napping? As naptime approaches, kids will suddenly express an overwhelming need for “veggie tales” (or whatever entertainment is currently rocking the pre-school crowd). This is your “teachable moment”. Let the tike know that if they take a nap first they can have chocolate milk and a cookie with the show. This will probably bring a cry for “cookie and Bob the Tomato now”. Be firm. The choices are Veggie Tales now, or a nap followed by Veggie Tales and a cookie later. If they pick show before nap, well then that is OK for now. You should, at some point, show them the cookie that they decided against, and then put it away. That might seem cruel at first, but it is a way to make the abstract concept a bit less abstract. Now eating the cookie in front of them, that’s cruel. Wait ’till to you get back to the kitchen to stuff your face, Mom and Dad.

Each child is different, and you will need to adjust tactics and experiment, but these opportunities will come. Another great approach that works for older children is the special savings bank. Eventually your kids will want something big (for them). Maybe it is the hot new game release or a new toy, and our instinct is to say “wait until Christmas/birthday”. Instead make the connection between savings and deferred gratification using a savings bank. Let the kids know that they can have it, but that they will need to save the money themselves (there is a use for that allowance again). Get a jar that can be made into a bank and decorate it with pictures of whatever it is that they want. Help them figure out how much they will need to save each week, and then help them stay on track. Pretty quick they will have enough money to buy that new (whatever) and off to the store you go.

As your kids grow and are able to handle more abstract concepts you can eventually leave the fancy jar behind in favor of an actual bank account (around age 9-10). Soon you will have college savings, savings for that special summer trip, and even (oh no) the dreaded car fund. This approach is designed to help children develop an ability to defer gratification. This can pay dividends in many aspects of their lives beyond childhood. If an appreciation for saying “no” now for something better later translates into their sex lives no one will be complaining.

It is important to tie these concepts (savings and deferred gratification) together. At some point there must be a pay-off for the child. If the kid never enjoys the fruit of their diligent savings all you will get is a frustrated kid, or a hoarder. Even for adults savings should have a purpose. As adults we need to maintain a reasonable reserve for emergencies, and that is an adult thing. Beyond that make sure you have a goal in mind for your savings. “A bigger balance” is not a goal, and it won’t work with kids at all. It is the pay-off, the enjoyment of the thing saved for, that will be the most powerful teacher.

About the author

Jim Heitman, CFP®

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