The importance of saving money for the rainy day is often emphasised. However, the focus most times has been on adults. This is forgetting the importance of laying the foundation for savings when people are still young. Why? Here are some reasons you should teach your children to save early.
1. Not everything is a must-have
It is likely you have heard the saying: “Not everything you want is everything you really need.” One of the most important money lessons is that there are choices to be made with your money; you either spend it or save it. Since availability of money is limited, saving is therefore a good way of making children know that it is not wise to buy just about anything that comes along. It is a way of setting aside funds for some more important items that could come up in the future.
2. Appreciating the value of money
Saving also represents a good way of making children learn the value of money. Some young people have no idea or do not care to know how hard it is for their parents to make money. And because of this, some kids are rather too extravagant when it comes to spending. However, if you can get your child to save part of the money needed for that Xbox 360 console he or she has always wanted, for example, the sacrifice involved may help to make them more prudent when spending.
3. Living a Debt-free adult life
The benefits of teaching your children how to save money early on go beyond when they are little. They extend into their later years as adults. It is remarkably common for people to be in debt these days. Most of these individuals are guilty of living beyond their means and failing to cultivate the habit of saving earlier in life. You can save your child, and your family, from the stress often associated with such debt issues.
4. Compound interest works wonders
The compound interest factor is another reason children should be taught to save early. The savings made now by your child can increase greatly with the aid of compounding, which involves payment of interest on both the saved amount and past interest payments. It is this power of compound interest that can turn a few thousand into tens of thousands after a decade or so. You can imagine how much savings made now, say, at a good interest rate of 2-3% per annum, would be worth in the next 15 or 20 years. The current low base rate isn’t going to last forever, so even though the best interest rates available now from the like of CB are in around the 1-2% region, this will go up as the base rate returns to more ‘normal’ levels.
There you have few reasons why you should consider getting your kid started on money management and saving early in life, and the above are just a few of them.