Raising a Generation of Savers, Not Spenders

The personal savings rate in the United States has been declining steadily over the past few decades - in fact, our saving rate has recently dipped into negative territory. It's one of the lowest savings rates among industrialized nations, and it indicates that millions of Americans are headed toward a bleak future unless they change their financial habits.

Disturbing data from the U.S. Census Bureau confirms this savings crisis. It recently reported that half of American families have net financial assets of less than $1,000.* And personal bankruptcies continue to climb, despite low unemployment rates and the soaring stock market of the last few years.

With this as their heritage, our children are being raised in an era of profligate spending and little planning for the future. They are in danger of reaching adulthood with no regard for saving, the value of money and the need for personal financial responsibility. In short, we are creating a generation of spenders.

Encourage the Saving Habit

However, there is hope. Merrill Lynch research has shown that early financial education makes a difference when it comes to saving for future goals. For the past seven years, Merrill Lynch has designated April as International Saving Month in a continuing initiative to raise awareness of the need to save.

The best long-term solution to the nation's savings crisis is to teach our children good financial habits. The foundation of saving - delayed gratification - can be one of the most difficult, yet most valuable concepts you can teach your children. How do you get children interested in putting money for tomorrow when they'd rather spend it today?

Pre-School to Elementary Age

Match savings concepts and programs to your child's age and abilities. Just as your children collect trading cards or dolls, they can learn to set aside coins or bills. For preschool children, who want to handle and count their money, provide an accessible, non-breakable bank for their savings. Even if youngsters can't save for more than a day or two, the habit of saving will begin to take root.

Have children who are a little older save toward larger goals. Tape a picture of the saving object on the bank to help your child visualize the saving goal. As a reward for saving, promise a trip to the child's favorite toy store, the grocery store or a "dollar store."

Liken the rewards of saving to time spent gaining proficiency in some skill. To play in the school orchestra concert or participate in a baseball game, your child needs to practice. Saving, like practicing, is simply the act of preparing for a future need or desire.

At age nine or so, a child might be ready to handle a bank saving account. Choose a bank that welcomes small accounts and sets their fees accordingly. Track the child's progress toward his goal with a poster at home.

Older children can become excited by how the compounding of interest makes their money grow. For example, assuming a 5 percent annual interest rate, a child saving $5 a week would have $266 by the end of one year and $3,371 in 10 years.

To illustrate this, use the so-called "Rule of 72." Take the number 72, divide it by the rate of return your money is earning to find the number of years it takes for your money to double.

The Teenage Years

Teens can be motivated by the offer of a small reward if they hit a certain saving goal in a certain amount of time. Challenge them to save $50 in six months and say you'll match that amount if they make it.

You might match all or a part of each dime or dollar a child saves. Or, raise a child's allowance for sticking to a budget for a specific time period. If your teens need help saving, provide guidelines. Put aside some part of their allowance or chore money before you pay them. Or, let them spend their allowance, but have them save some of their gift money or money they earn at jobs.

Don't worry if your teens spend their money on goals you don't think worthy - a video game or trendy clothing. It's the saving habit that's important, and it's better for a teen to learn on her own what's worth saving for without your intervention.

Saving at Any Age

Saving can be learned, no matter how old you are. Get your youngsters into the practice of saving early on. It's a habit they're likely to carry into their adult years, giving them a head start toward their own financial security and future success.

Perhaps most important is to provide the example your children need in order to learn the value of saving. Every family needs a plan for spending and a system of controls to ensure that the spending plan is followed. By putting those elements in place, you'll ensure that you'll have money in your budget for saving.

Talk with your financial consultant about ways you can set aside savings for your future. Get started with automatic investment plans, tax-favored savings and retirement accounts, and other convenient and rewarding ways that can make your net worth grow.

And, remember, when it comes to saving, time is one of your biggest allies. Over time, your principal can increase through growth not only of your investments, but also of your interest, dividends and new deposits of savings. Because of this opportunity for growth, the earlier you start, the more likely it is that you'll reach your financial goals.