6 smart moves to teach kids to save

Man in suit handing money to a child from his wallet

Our kids are going to have it tough when it comes to saving for retirement.

Pensions are going away. Just 18% of private industry employees were covered by defined benefit plans in 2011, according to the Bureau of Labor Statistics.

What's more, in just a few short decades, Social Security is on track to be able to pay out just 75% of the amount it will be obligated to pay.

With do-it-yourself retirement now the norm, today’s kids will likely need to secure well more than a million dollars before they stop working, T. Rowe Price’s 2013 Parents, Kids & Money Survey found.

That's why it's more important than ever to establish solid savings habits in the home.

"Kids will model their parents in just about everything, and that includes financial habits," says Andrew Housser, co-founder and CEO of Freedom Financial Network, a financial services firm with headquarters in San Mateo, Calif. "The sooner you start following a budget, setting up your savings and investments, the more your child will pick up on those skill sets."

Follow our 6 smart moves to teach kids to save, and you'll prepare your children for a more secure financial future.

Smart move 1. Make it real.

Kids need to know the value of the goods and services you purchase.

Supermarkets, malls, department stores — all of these are places that present opportunities to talk about money.

Before going shopping with your children, prepare a list and show it to them. Mark items either as "needs" or "wants."

"Determine how much you’re able to spend in advance, and stick to that amount," suggests Shelley Solheim, director of financial education at Capital One. "Let your children help you check items off the list, and make sure they understand that every spending decision is a choice."

Smart move 2. Give an allowance.

Putting a small amount of cash into your child’s hands each week will help him or her see how money flows.

Talk to your child about allocating the new income. Set up a glass jar for saving, another for spending, and a third container for charitable contributions.

While it may be easy to dictate what purchases should be made with an allowance, now is the time to start teaching your child to manage solo.

"Allow them to make some spending decisions while young so they can learn from their mistakes," Housser says.

Smart move 3. Start a savings account.

When your child approaches the age of 10, open a savings account in his or her name. As your child receives money from allowance, gifts or a job, it can be added to the account. Go over the monthly statement with him or her, and show how compound interest works to grow the money.

For extra encouragement, offer to make a matching contribution for every dollar your child saves. Say your son has his heart set on a new bike but doesn’t have enough saved for the purchase. Consider putting in an additional dollar for each dollar that he saves, until he reaches the amount needed for the set of wheels.

Bonus: Your child gets an initial peek at how a 401(k) works.

Teach your kids to saveTeach your kids the 10-10-80 rule. Lisa Tukalj wanted to teach her two young boys how to save. So she handed them three envelopes, which they used to follow a simple money management rule. Save 10% of your money and tithe 10%. The rest — 80% — you can do with as you please. Since then, the boys have used that rule for all of the money they've received for allowance, good report cards, holidays and birthdays.

Smart move 4. Make budgeting a team effort.

Bring your child into conversations that involve the family budget. "Even younger children can participate, since a good budget starts with family goals," Housser says.

Before drawing up a budget or making changes to your current one, determine what goals your family has. These might consist of setting aside money for a college education, purchasing a new home or taking a Disneyland vacation.

Once you’ve settled on goals, work them into the budget. Decide how much you’ll set aside each month to put toward your family’s goals.

By giving your child a glimpse into this process, he or she will start to understand how daily decisions fit into the big money picture. Perhaps your family decides to cut out one restaurant meal per week and set aside the money for an upcoming trip. Even though you’re not eating out as often, your child knows the money will be used for a later, exciting event.

Smart move 5. Talk about the future.

"Our conversations with kids around money often revolve around the word 'no,' " Solheim says.

To avoid falling into this tendency, keep the focus on what your child will be able to do in the years to come if he or she plans correctly.

To start, ask your daughter about her dreams. Then discuss how setting aside money regularly can help those dreams become a reality.

"Saving provides the possibility of options — options on how to live, where to live, what to buy and invest in," Housser says. "Not saving takes those options away."

Smart move 6. Reinforce lessons with online tools.

For today’s tech-savvy kids, online resources may help further cement what you say — and show how saving can be fun.

To teach financial basics, try Save! The Game, an app designed for the iPod touch and iPhone by MassMutual Financial Group. The Great Piggy Bank Adventure (also available for mobile devices) helps kids learn about smart money planning. Young Investor Fund (www.younginvesterfund.com) offers a wide selection of educational games for kids starting at age 2 and going past age 13.