How to set long and short term savings goals with your kids
Setting goals can help kids turn wishes and daydreams into real plans.
“My birthday is so far away” was a statement overheard earlier this week, spoken by a little girl who looked to be around kindergarten age. It’s a good reminder of just how different the perspective of time can be between the generations.
Kids’ time perspective in terms of savings goals can be similar: for younger children, “long-term” might mean sometime around next Tuesday. As they get older though, kids can learn how to save for and achieve short, medium and long-term goals. In fact, right now is a great time to sit down with your tween and teenage kids and help them set up a plan for achieving their goals.
Why should they set goals?
The benefit of setting goals is that it helps to turn wishes and daydreams into real plans. Writing down a goal and working out how long it will take to save for it helps kids to properly understand both the dollar cost of the goal and the effort and time that it will take to achieve it. It’s a terrific learning experience.
It’s also fun – who doesn’t like setting goals for the things you really want? So here is our easy step-by-step guide for helping your children to set and achieve their goals.
Firstly, sit down with your child and discuss with them all the goals that they have. There may be many. If your child has more goals than they can possibly afford over the timeframe, part of the discussion will need to involve prioritising: what are the most important goals? The ones that they really want to achieve?
Help your child to make a list of all their important goals and to divide them into short-term (within a month), medium-term (within a year) and long-term goals. For example:
- Short-term: birthday presents for friends
- Medium-term: Holiday spending money
- Long-term: Airfare and spending money to visit a friend
Once your child has their list of important short, medium and long-term goals, help them to work out the cost of each goal and add that to the list. They may need to do some online or in-store research to work out an accurate cost. For example:
- Short-term: Birthday present for friends - $35
- Medium-term: Holiday spending money - $150
- Long-term: Interstate return airfare and spending money to visit a friend - $600
The goal sheet will be looking good at this stage. Next, discuss with your child how much money per week they can afford to put towards each goal. That will help them understand how long it will take them to reach the goal. For example:
In the example above, going through the planning process would help your child to understand that their holiday spending money goal may be too ambitious, given the amount they can afford to put towards it. This will prompt them to go back through their budget to possibly cut costs, or else to develop a plan to earn more. Planning will also give them a realistic expectation as to when they will be able to afford to take their interstate trip.
Finally, ask your child where they would like to put the money. It can be good to separate the short, medium and long-term savings and perhaps a combination of a piggy bank, transaction account and savings account could work well.
For related posts, and downloadable activity sheets about financial literacy for kids, visit the Beanstalk.