THE BLOG
12/09/2015 12:11 pm ET Updated Dec 09, 2016

5 Ways to Teach Your Child Good Savings Habits

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New parents know that there are major costs that come with starting a family. According to a recent study by Voya Financial, 40 percent of new parents say they spent at least $500 on baby-related items they later found unnecessary. As you learn how to manage the costs of a growing family, it's important to bring your children into the conversation. Developing your children's understanding of finances at a young age will help them to plan more effectively and make better decisions later in their lives. Here are five ways to introduce your children to money and saving:

1. Get your kids involved in the conversation
Before you can get into any specifics around money or saving, you need to simply start the conversation. Introduce your kids to spending and savings practices by showing them how you make financial decisions and use math everywhere. Let them help figure out the best deals on groceries by comparing shelf prices and looking through coupons. As you go about everyday tasks, ask questions like the following to get them involved and aware of how you spend and save:

• Is a bag of apples better priced than individual ones?
• In a restaurant, how much tip should you leave?
• How many quarters do you need in the meter to park for an hour?

By showing kids that money is a part of daily life, they will start to see the value in budgeting and thinking about how they use their resources.

2. Use allowance as a teaching tool
Many parents like to give their children the opportunity to earn a small amount of money by helping with household chores. A young child can earn money to fill up a piggy bank by helping around the house with simple household chores -- for example, folding laundry or feeding a pet are simple tasks that can inspire them to feel like they are making a valuable contribution to the family. If you do provide some sort of allowance for your kids, it presents an opportunity to have a broader conversation about how to set up a budget and establish savings goals.

You can also introduce an allowance system that incentivizes kids. When they get their allowance, encourage them to put at least 10 percent into savings, while the rest is theirs to spend or save as they wish. As an added incentive, consider matching any dollars they put into savings, doubling their money. When my wife and I incorporated this with our children, they quickly realized the power of compound interest. If a future employer of theirs offers matching contributions towards retirement savings, they will have no trouble grasping the concept.

3. Highlight the importance of saving
Once your child is "making money," even through an allowance, it is a good time to talk about the importance of saving. If they have their eye on a new toy, help them figure out a plan to save up for it. It would be ideal to start with smaller items that they can easily save up for over a few weeks, as opposed to months on end, so that they don't get discouraged trying to save for their first big purchase. Of course you want them to understand the value of saving and hard work, but getting that first reward is an important part of driving the lesson home.

You can also start to have conversations about prioritizing funds. Remind them that when they choose to spend their weekly allowance rather than save it, it will put them behind in reaching their end goal of a bigger purchase. When they have a set "income" and goal to work toward, kids will be able to start thinking through where and how they spend their money. This will help them understand the value of their savings over the long run.

4. Introduce investing

As your children get older and are earning more money through part-time or odd jobs around the neighborhood, it's a good time to help them move beyond the piggy bank. Introduce them to checking and savings accounts so they can start learning about managing their money in a more formal setting.

You can also introduce the concept of investing. Have them pick out a company or brand they know and like, and then work together to track that company's performance over the course of a few months. You can even pick a company to follow yourself and compare how each other's stock is performing. This is a simple way for your child to start understanding the different ways they can leverage their earnings as they grow up while also getting a general lesson on how markets work.

5. Be a financial role model

There are many life lessons we attempt to teach our children while they are impressionable and young. One of the most important is to be able to teach them how to effectively manage their money. Creating good savings habits will pay dividends for the rest of their lives.

Be a positive role model and keep the dialogue about money open. Kids closely watch their parents and the behaviors of other adults during their early years. Children need to be taught that it takes time and effort to earn money, and that there is a logical process behind spending and saving it. The more open and engaged you are with your children about the realities of managing money, the better they will be able to prepare themselves for a financially secure future.