Step 3: Make Saving and Investing a Habit
Teach the rule of 10 percent
Whether you're giving your children an allowance, they're working for their money, or they get cash gifts for birthdays and holidays (much like you get windfalls in the form of tax returns), now is the very best time to teach them that at least 10 percent of their money should be saved. It's okay—in fact, it's good parenting—to insist on it. Some parents reinforce the message by equipping their children with three jars—one for saving, one for giving (more on that in Step 5), one for spending, or a bank that has several compartments. It helps, but it's not necessary. A jar for saving on their desktop, dresser or a section of their wallet is all they need.
"Why should I do this?" your child will ask. Because even 10 percent of an allowance and birthday gifts adds up. If your child saves 10 percent of his allowance from the time he's in kindergarten until he's a senior in high school, he'll have $473—without interest! If he puts the money in a savings account with a 5.05 percent APY, he'll have about $613. (Note: This assumes the strategy mentioned earlier, in that you start your child off with $1 a week in kindergarten and increase it $1 each year.)
See how your child's money will grow!