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MONEY-SMART KIDS
Encourage Kids to Save
by Janet Bodnar

Should a child be required to save a percentage of her allowance? If so, what rules should apply? Should a parent set rules about how the money should be spent? Should the child have to maintain a continuous balance in the account?

You're covering a lot, so let me tackle your questions one at a time.

"Should a child be required to save a portion of her money?" Take your cue from your child. Some kids are natural savers -- occasionally to the point of hoarding their cash. That's just as unhealthy as not saving anything, and you may actually have to encourage them to spend money.

If your child is one of those whose allowance burns a hole in her itty-bitty purse, you may have to impose some discipline. But keep it simple.

For example, you might require her to save 10 percent of her allowance. Deduct that amount off the top at the time you give her the money, and hang onto it yourself or keep it in a big jar or savings bank so she can see the money grow.

"Should a parent set rules about how the money should be spent?" For the most part, no. Like adults, kids can't save in a vacuum. They need to save for a goal, and be rewarded for their efforts. For young children, the goal should be small and easily achievable within a short period -- a new doll or action figure, for example. As kids grow, they can save for bigger, more expensive purchases.

You can help them settle on a goal, but beyond that let them make their own decisions. And most important, take them to buy the item once they've saved enough money. Even if it means depleting their savings, they need to savor their reward. And they can always start over.

One exception to this rule would be the case of a teenager with a part-time job. In that case, it would be appropriate for you to require her to save a portion of her income for college.

"Should kids keep a continuous balance in their account?" Based on my previous response, the answer is no. Especially if the money is stashed in a sock drawer or savings jar, the balance will fluctuate.

Again, the exception would be a teenager saving for college. In that situation, you could stipulate that she not touch the money except for college-related expenses.