Cost-Cutting and Saving
Strategies for Kids

"Here you go, Steve," I say, handing my fourteen-year-old his $30 allowance. "Got any plans for it?"

Besides the obligatory ten percent for savings and another ten percent for church giving, the rest is my son's monthly spending money. But sometimes it hurts to watch my hard-earned income pour like water through Steve's ready-to-spend fingers. The only consolation is that sometimes he learns a much-needed economics lesson.

"Well," he replies tentatively, "I'd like to get that computer game I've been saving for."

"How much is it?" I ask, knowing what's coming.

"Forty dollars. Or maybe forty-two, with tax."

"Hmm. How much have you saved?"

"Eight from last month. With this month's allowance, I'll have thirty-two dollars." He looks doleful for my benefit, but my expression does not change.

"Not quite enough, is it?"

"No."

"Well, if you put all of it away this month, you'll have the rest when next month rolls around."

Sulkily, he turns toward the stairs leading to his bedroom. "So you won't lend me the rest?"

"You know our policy on debt, son. It's a bad habit to start."

I could have given him the ten dollars, or I even could have let him wash my car or clean the basement to earn it. But I want Steve to learn how to budget for higher-priced items. Immediate gratification is risky at best.

Thus begins my teenager's lesson on long-term savings. As it turned out, he spent part of his allowance for another computer game that went on sale for $10. But his birthday brought cash gifts from relatives that put him over the top for buying the long-awaited computer game.

Consumer debt is at an all-time high in the United States, and bankruptcies are climbing as well. It's a good idea to start kids off on the right foot with learning to manage money and even cut costs on the things they buy. Fortunately, there are several easy ways to help them work toward these goals:

1. When giving an allowance, establish a formula for spending it. For example, some parents have their children put 5% in short-term savings to buy things like clothes or games, and 5% in long-term savings for something like a bicycle or even a car for their teen years. Insisting that kids give up part of their income for another purpose introduces them to the concept of budgeting.
   
   
2. Urge them to compare costs. When Steve finally saved enough for the $40 game, he wanted to rush out and buy it that day, even after my husband advised him the game was supposed to go on sale the next week. Our son was in such a hurry to get the prized game that he was willing to pay $10 more rather than wait, which is a typical teenage response. When we asked if there was anything else he would buy if he could, Steve mentioned a music CD that cost $14. Mike pointed out that the CD was on sale for $10, and that Steve could also get the game if he waited a few more days. Elated, Steve began to see the value of watching for sales and comparing costs.
   
   
3. Start a tangible savings account. When he turned eight, Steve wanted to begin a recycling "business." Mike took him to several neighbors' houses to set up monthly collection "accounts" of old newspapers and aluminum cans. At the end of the month when they sold the collections to the recycling center, Steve proudly showed his $12 and I took him to the bank to open a savings account. Feeling very mature, Steve signed his own name (with me as co-signer) and deposited $10, which was the minimum required. Month after month, he eagerly asked me to take him to the bank to hand over part of each collection's earnings so he could have his passbook signed. Many banks offer maintenance-free accounts for children under the age of eighteen.
   
   
4. Look into an investment account for your child. Sites operated by information clearinghouses like CNN (http://money.cnn.com/1999/10/26/banking/q_kidsbank/) and investment brokers offer helpful information for introducing kids to the world of banking and investments. Some theorists maintain that a child's spending habits are formed between the ages of five and seven. So catching them early can set your children on the path to financial freedom as they grow older.
   
   
5. Model cost-cutting behavior. "Why don't you buy that dress?" Steve asked me one time at the mall as I window gazed. "Because I'm saving for our vacation getaway next month," I reminded him. Steve notices that I clip grocery coupons, use multi-purchase discounts for restaurants like Subway or Auntie Em's pretzels, and shop for clothing from the sales rack. In fact, he often points out coupons or sales items for my benefit because he knows it is part of our lifestyle.
   
   

Teaching kids the value of money doesn't have to be difficult. Catching them early and being consistent are two ways of helping them learn to master the challenges of making do or doing without rather than living beyond their means.

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Rose Alexander teaches college writing. She and husband Mike enjoy reading and travel with their son and daughter.

Take the Next Step

• Start by opening a High Yield Savings Account. We recommend Ally Bank. Very competitive rates. And there's no minimum balance required. So you can start today!
• Check family product reviews at Cheapism.com before making a purchasing decision.

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