Girl coloring with her Mom
Financial Literacy

You Can Learn to Save!

Kids must learn to save like everything else in life. Psychologist and family therapist Urs Abt explains why financial education is so important, and how parents can help their children learn about it. According to him, "Parents are an important role model!"

Portrait of Urs Abt, psychologist and family therapist

Urs Abt

Psychologist and family therapist

Mr. Abt, as the creator of the youth allowance, you have also dealt a lot with the topic of saving. Why do you think it's important for children to learn about saving and who do you think is responsible for this?

Being able to save is a key aspect of financial education and general social skills. Of course, parents have primary responsibility for teaching their kids these skills as an important part of education. And all education is based on a relationship. This should be open and lively enough to talk about money too. Children should learn from an early age that there is a system: People buy things with earnings from their jobs – the ATM is not a money tree.

Why is helping our kids become financially fit such an important basis for their future? What are the possible disadvantages if we don't do it?

A lack of confidence in handling money poses a major risk that children and youths won't be able to allocate their finances properly later on and – for instance, when they buy a car or an unexpected tax bill arrives – before they know it, they can wind up in debt; from there, they may be less involved in their social and cultural environment due to a lack of money, and be left out.

Financial education includes saving. What skills and qualities should be taught so that kids can learn to save?

The main thing kids have to learn about saving is how to wait for something – patience is a virtue! About 40 years ago, researchers conducted the "marshmallow test." Each child got a marshmallow. Those who waited instead of eating it right away got another one. Many children really struggled with this, while others developed a strategy (looking away, closing their eyes, moving their plate aside, etc.) in order to resist temptation. Children who successfully passed the test demonstrated better social skills throughout the study and did better in school. So patience and perseverance are essential for more than just saving.

How can parents assist with their children's development – including when it comes to financial education?

Letting kids do things themselves, which in turn gives them the chance to experience many achievements – that's the key. The confidence to achieve what they want time and time again is an essential part of healthy development.
Often, parents do way too much for their children and spoil them to excess – not just in terms of material things but also smaller things like putting on their shoes or pants for them. These are huge accomplishments for toddlers, and parents should be patient. By doing so, they foster development in all areas. However, this also means the parents have to surrender control – and that's important. After all, if people are used to having everything done for them, they may not do well on their own.

How do kids learn to assess the value of money and set priorities?

By handling their own pocket money. However, in general kids have a very good sense of money. Let's say, for instance, that a child wants a chocolate bar in the checkout line. If her parents say: "Sure, if you pay for it with your pocket money," then she will usually change her mind. This helps kids learn the value of money and how to set priorities.
It's also important that children not take cash gifts for granted. For instance, if they get money from their grandparents, you can teach them the value of the cash gift by letting the child fulfill a wish. Parents can also help them with a thank-you letter or drawing. This is another way of showing kids that money should not be taken for granted.

If you had to teach a child how to save, what would you do?

First you have to ask yourself: What does a child need to learn to save?
First, money; second, something that he or she must manage, buy, or arrange for with this money; and third, the parents' confidence that he or she will succeed.
Specifically, this means that I would give children money (pocket money depending on age, or a youth allowance starting at the age of 12) and make them responsible for some of their needs. Starting at age 12, this can include basic essentials such as clothing, shoes, etc. Once children have saved the money they need for a certain wish, I would accompany them to the store and have them pay for the item with their own money. Kids are often sad after that because their money's gone. But I would never give them more money as a consolation. I would just explain that from then on, they could save their pocket money for the next wish.
Children age 12 and up with a youth allowance should decide for themselves whether to go shopping alone or bring their parents along for advice. The experience of allocating their own money and setting priorities motivates children and youths to manage other parts of their life independently as well. Experience shows that children who are given responsibility take this very seriously, and try their best to avoid breaching their parents' trust.

Any last tips for our readers?

Be a role model for your children and show them how you save. It helps, for instance, if you explain to them that you're not going to buy a new pair of shoes at the moment, because you're saving for vacation. Talk about money with your kids, tell them your wishes and go shopping together once a saving goal has been met. Share the fun!
You can also talk about the family budget with older children, and discuss the cost of housing, food, vacations, cars, etc.