Teaching a Three Year Old How to Save

Over the last few months, my three year old son has received quite a few $1 and $5 bills from relatives for various reasons – his birthday and Christmas chief among them.

Prior to the past few months, we would simply allow him to “spend” the money in a very simple fashion. He would take a dollar to the store with him, select a low-cost toy (usually a Hot Wheels car), then give that dollar to the cashier to pay for it (with Mom or Dad quietly making up the difference). It’s a simple enough lesson – money is something to be exchanged for goods and services.

Lately, though, he has become interested in purchasing other toys – some of which cost several dollars. Our answer up to this point has usually been that his dollar can only buy certain toys, but recently I decided that it was time to extend his learning a bit.

A few weeks ago, at the store, he had two dollars to spend. He spent most of his time intrigued by a nifty pullback car that cost $7.99 – and he wanted to spend just a dollar to buy it.

I told him quite simply, “This car costs eight dollars. You only have two dollars. You don’t have enough dollars to buy that car.” We worked through the counting using our fingers so that he understood that he needed six more dollars.

That didn’t shake his interest in the toy, however. He still wanted it.

“Well, if we don’t spend these dollars today and take them home with us, we can wait until we get six more dollars and then buy the car,” I suggested.

After some commiseration, he decided to spend one dollar on a small car and to try this saving concept with the other dollar. We got home, found a jar with a lid, and put the dollar inside so that he could see it.

That jar now sits on our kitchen counter. Since then, our son has been able to add some money to the jar – he can clearly see his savings as it builds up. He knows what it’s for and he’s excited to contribute to it whenever he can.

To put it simply, saving money has now become relevant and exciting for him. It’s very tangible – he can see his savings grow. He also has a goal that’s small enough that it seems reachable – he only needs to save up to $8, after all.

I think that the same aspects that are making saving tangible for my three year old son work well for adults, too:

Set a clear, tangible goal for savings. Know exactly what you’re saving for and keep it in mind. Figure out the exact dollar amount you need to reach. Know what the reward is for reaching that dollar amount. The more tangible your goal is, the easier it is to reach for it.

Set up milestones along the way so you can see progress. A $10,000 goal seems unbelievably high for many people. So transform it a bit. Turn it into a goal of $100 a month. With that little goal each month, you can reach your big goal in a bit less than eight years. Then push yourself just to reach that little goal each month – or to exceed it!

Keep the savings in your mind. Put up reminders of your goals in places where they’ll have impact for you. Wrap a picture of your kids or your dream house around your credit cards. Write the dollar amount on a Post-It note and keep it on the bottom of your rear view mirror. Keep that goal in your mind and you’ll stay focused on it.

So what’s next? The near future points us to our child’s next lesson: how do you earn money? That will be a whole new adventure.

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  1. Mrs Embers says:

    Great idea- we’ll be setting up a jar for our little guy very soon! He likes to get toys at the “stoy-er”, and having him save for them is a GREAT plan!

  2. Moneymonk says:

    “Set a clear, tangible goal for savings.” I doubt if a three year old will grasp that, LOL

    I always train my little one to save invest and give a little

  3. That’s really a good way to teach them about money. But it will be great to also incorporate some moral lesson, like sharing his toys with his siblings or donating to people more needy.

  4. Stacey says:

    A great lesson for both kids and adults!

    I can hear my in-laws if they would read this… “It’s only $8, buy the car for the poor boy.” But the whole point is, he needs to learn the value of money and saving. Our current economic problems are based on adults not learning this concept.

    I can see that we will be having some *serious* conversations with our family once we have children. Good for you for teaching your boy a valuable lesson!

  5. Gabriel says:

    Fantastic!

    This reminds me of my “found money jar” which is specifically for money I find, usually on the ground. I like to think that this increases my respect for the power of a penny – it certainly makes me excited to find one!

  6. NYC reader says:

    When I was a kid, the $1 I periodically got from Grandma and Grandpa went into a special purse my mother kept in her dresser. When I wanted a toy or other item, that was the money used to purchase it, along with additional money from my chore allowance if needed, but WITHOUT any additions from my parents. It taught me about saving for a goal and delaying gratification.

    On the other hand, “found money”, the odd penny or loose change found on the street, was not mine to keep. It went into a special charity can or jar kept in the kitchen. When the can or jar was full, we’d count out the coins, exchange them for dollar bills, and donate the money. That taught me another important lesson, the value of giving back.

    When I complained to my mother that other kids were allowed to keep coins they found, she explained that it was not right to profit from someone else’s misfortune. Someone losing money on the street was a misfortune, and by donating that money to charity, good would come from it.

    Trent, it’s not my place to tell you what to teach your children, but this is a teachable age and a teachable moment. Teaching children about giving to charity can foster a lifelong ethic that’s good for the community and the world.

  7. Ted says:

    Very similar to what my parents did for me actually when I was younger. I used to get an allowance of $1 every month for however old I was and then I could get a “bonus” for things like helping my dad with yard work and, once I was old enough, washing the family cars. I remember I used to just spend it on things like your son does now. I think the turning point for me was when I was around 7 or 8 years old, I got a “check book” it was a play check book that taught me how checks worked and I really started using it when I took a “loan” from my father for my first bicycle. I saved up a down payment and made monthly payments to him via the fake checks.

    But, anyway, didn’t mean to start reminiscing about my childhood. However, I have to say that teaching my child about money and saving is one of the things that I look the most forward to when I have children.

  8. Nice, your boy is already smarter than most adults!

  9. Nate @ Money Young says:

    This is good stuff trent, I enjoy hearing stories about lessons for kids.

    -Nate

  10. Sandy says:

    3 is a great age for learning! We wnt on many walks in the forest when she was 3, and her love of nature never fails to amaze me! Have fun!

  11. sprfrkr says:

    3 year olds don’t understand saving.

    There have been popular studies involving this subject where the premise is a child can choose from one piece of candy now, or three pieces of candy if they wait until the next day. All the young kids choose the single piece that they can have right then. It is only until they are several years older that they are able to choose taking the greater amount at a later date. Some psycho-babble name for it eludes me now…

  12. Bernardo says:

    What a great story! I liked the fact that your son can see his savings building up, it really drives home the point of saving.

    Aside from learning to save, your son will learn to delay gratification, something ver important in life and very difficult for children to learn.

  13. There are many adults that could learn from this post and start a savings jar . . .

  14. Michele says:

    I just wrote a post on talking to your kids about money – not necessarily teaching them how to save but the value of it – showing them good examples, explaining to them why you are making certain decisions, and reading to them stories about people and their money. Here is a link if anyone is interested: http://savingmoneyirl.blogspot.com/2009/03/talk-to-your-children-about-money.html

  15. Amanda says:

    Someone might have said this already I didn’t read all of the comments. It might also help the child (or anyone) to get a picture of the toy (or object) that you are saving for, and put it in a place you can see regularly. For example next to the jar on the counter. That way you can stay focused.

  16. Nicole says:

    What an adorable story. I’m doing pretty much the same as your son by saving a certain amount each paycheck for a new “toy” (iPod). At 26-years-old this is the first time I’ve saved towards a specific goal; your son will be well ahead of the curve.

  17. Christopher says:

    Sounds like you turned this into an excellent learning opportunity, and good on you for teaching your kid the value of a dollar. Knowledge like that pays HUGE dividends later on in life.

    I do not remember where I heard this idea (perhaps Dave Ramsey?), but my wife and I have set the framework for how we plan to teach our children about money when the time comes. It’s called a 401(Dad) and here’s how it works.

    Any time the child makes money, be it through chores (work) or gifts (bonuses), that money is divided up into three parts. 60% of the money goes directly into the kid’s pocket (income). 20% goes into a savings account (mid-term savings). 20% goes into an off-limits savings account managed by the parents, and it is this part for which the plan gets its namesake. This 20% is the 401(Dad), and the parent matches any contributions to this account. This account is off limits until the child is 18 (or retires from childhood), at which point control of the account transfers to the child. The child has open access to the savings account, which can be used to supplement spending money, or simply saved.

    So let’s say Jimmy gets $20 from mowing the lawn. $12 of that is his spending money. $4 goes into his savings account, and the other $4 goes into the 401(Dad), with a matched contribution from me of $4. Should he choose, Jimmy could withdraw the money from his savings to buy that toy he really wants, but spent money is spent, and you can’t spend money you don’t have. This teaches several money lessons all at once, and sets Jimmy up to understand not only the impact of saving and planning for the long term, but also how work works in most situations in that you don’t always get the money you make, but that doesn’t mean you can’t make it work for you.

    Most importantly, for work there is reward. Save for the future, but don’t neglect the present.

  18. Maureen says:

    Here’s another one to try with your son. Give him the choice between having a penny or a dime. A young child will invariably choose the penny since it looks larger (must be worth more according to their logic).

    Similarly a young child believes a tall slender glass containing a cup of water ‘holds more’ than a short wider glass also containing a cup.

    Fun mind games…

  19. imelda says:

    And the best part is, he’s going to love that toy SO MUCH when he finally gets it. It’ll mean that much more to him, after all his anticipation and hard work.

  20. As a mom of five, raising fiscally responsible kids is a huge goal of ours. I believe learning to manage their money wisely is one of the greatest gifts we can give them. :) Good job!

  21. Jessica says:

    I just had to say, I love this story. It’s really for the little stories like this that I love reading your blog :) (Well that’s just one reason, I’m sure I could come up with many more)

  22. MattK says:

    We started a small allowance with our oldest son at age 5. When we did, we took three plastic cups (formerly sippies) and labelled them “spend”, “save”, and “give”. He divides his money between them as he wishes. Interestingly, the “give” cup gets the most attention. It’s been a great way to teach him about helping others, and it allows him to choose causes that he’s interested in.

  23. Cyllya says:

    It’s weird to see people insisting that this concept is too complex for a three-year-old after reading that yours has.

    He probably would have been less likely to save if he’d only had one dollar and it was all-or-nothing between save or spend now. But that’s understandable.

  24. NotAmy says:

    I think you mean “deliberation”, not “commiseration”.

  25. Roger says:

    That is a wonderful little story, and I’m glad you have come up with a good way to get your point across. It sounds like your son is going to be quite the chip off the old block, and I’m sure he’ll thank you for the excellent start in life you’ve given to him.

  26. greg says:

    Born to save: our 3-year-old son likes to save his food for later. Whenever we go to a restaurant, he asks me to take home some fries or some bread. And he still has some of the chocolates that Santa Claus gave him for Christmas!
    I am confident he will pick up the idea of saving money, when the time has come for him.
    When I was a little kid, my dad would give me 2 Deutsche Mark to buy cigarettes for him. They cost 1.80 Mark, and I was allowed to keep the change and save it for toys or sweets.

  27. greg says:

    Born to save: our 3-year-old son likes to save his food for later. Whenever we go to a restaurant, he asks me to take home his leftover fries or bread. And he still has some of the chocolates that Santa Claus gave him before Christmas!
    I am confident he will pick up the idea of saving money, when the time has come for him.
    When I was a little kid, my dad would give me 2 Deutsche Mark to buy cigarettes for him. They cost 1.80 Mark, and I was allowed to keep the change and save it for toys or sweets.

  28. Amy says:

    One suggestion:
    Make the savings progress more concrete and tangible. Make a graph with 8 boxes. Each time another dollar is added to the jar have the child fill-in, put a sticker on, or otherwise mark a box. He can see his progress and see how much more is left to do.

  29. Vickey says:

    It appears that having put the money in the jar where Trent’s 3 y.o. can watch his savings grow has moved the savings concept from the abstract – “wait until tomorrow and you can have more” – to the tangible – “here’re your savings, growing big enough to buy that car”. If his son is enthusiastic and excited, rather than upset, then it sounds like he’s got the concept ok.

    Also re the “candy now or later” test – four-year olds who were able to distract themselves from the temptation of eating ONE marshmallow while the tester was out of the room, so that they could have TWO marshmallows when the tester returned, went on to be more successful in delaying gratification and reaching long term goals later in life than those who weren’t. Google “The Marshmallow Test”.

    Off to hide my “marshmallows”. From me! ;)

  30. WM says:

    There is a neat little savings jar called a “moonjar” that you can find on the web or that you could probably make on your own. It is split into thirds with one slot for spending, saving and giving. It works well for our 5 and 6 year olds although they still tend to want to put all their money in the “spending” slot.

  31. drdrew says:

    Trent, this article jumps from “buying power” to “saving” so fast I can see why people disagree as they’re two completely different things. Even though some feel it’s difficult for a 3 year old can’t grasp the concept of savings, it’s not not impossible to instill it given the right motivation.

    The “candy study” in the comments above is a bad example, imo, as it satisfies an immediate want and the 3 promised later is akin to the old “out of sight out of mind” that they won’t want until it’s in front of them again anyway.

    With our 3 year old, we started this earlier, him filling all kinds of fun things with money he’s saved (a “real wallet like daddy’s” for bills, a mini-toolbox for loose coins and a dump truck for rolled coins). A jar is very boring, even for me, and this gives him an incentive to “fill ‘em up”. When any of these are getting full, we count it and either roll it, or take him to the bank where he deposits it into his account with a 100% match from me. So how does he know or even care I’m matching him or why he’s even saving it to begin with? Physical and visual representation; a star chart for example. Whatever works for your little one.

    While I agree it’s never to early to start teaching children responsible financing; they need to be kids for a little while. Ergo, you need to step back and make sure you’re not exerting your financial prowess upon them like some pushy, overbearing parent trying to live through them. While your intentions may be good, too much of anything is not good for anyone…

  32. Jim Rubenstein says:

    My wife and I give our 5 year old $4/week as an allowance if he does his chores (cleaning up his toys, sorting his laundry, stuff like that). We’ve done a similar thing with teaching him to save, so far he’s used his money to buy himself a new Veggie Tales DVD, and a Razor scooter. He seems to really grasp and understand saving, but he’s definitely not a fan of spending the money he saves. Not sure if that is good or bad, lol.

    I’m all for teaching children the value of money and how it should be used, but it’s also a touchy subject for me. When I was a kid, my parents were very careful to not talk about their personal finances around me. Now that I’m an adult with my own child I feel the same way, although, in practice, I’m not as good as it as my parents. My son really grabs on to things you say, and sometimes he’ll not ask for things because he doesn’t think we have the money – that is definitely something a child should *never* have to worry about.

  33. Great story. I think your son will have a positive association with money from these kinds of teachable moments because (a) he got to have his cake and eat it too — immediate gratification AND savings, and (b) he got to make the choice himself.

    My daughter just turned 8. She has had allowance for three years. We decreed that she must save 25% for longer-term goals (not yet determined, although she has a mental image of a horse) and she must set aside 25% for charity. She can spend 50% on whatever she likes. We advise her sometimes (can’t help commenting), but it is her choice. She can choose where to give the charity money, and she has contributed to Trick or Treat for UNICEF, animal rescue organizations and our sponsored family at Christmas.

    A while back, I explained about compound interest to her and she ran to get her “savings” envelope so I could invest it in an interest-earning account.

    Birthday money is hers to keep, although if she gets a windfall we encourage her to save some of it. Also, if she has outgrown a valuable toy and decides to sell it (we give most things to charity or friends when she outgrows them), she can have the proceeds. Last fall, she sold some princess items and “reinvested” in an American Girl doll on eBay. She chose a less expensive, older doll to get the most doll/accessories for the least cash.

    We pay for movies or family activities, but we don’t buy her toys during the year — that is up to her. Sometimes she splurges, often she saves for goals independently, and it’s exciting to see her putting life lessons into practice all by herself.

  34. That is so sweet! I hope to teach our baby important goals about saving. I remember taking my dad’s piggy bank and spending hours just counting the coins. Knowing how much was in there and counting it periodically to see how much it had grown was so fun for me. :)

  35. Dori says:

    This is a wonderful concept & believe me Trent, it will pay off in the long run. I am a single mom of 3 girls, one 13, one 9 & one 3. I started teaching all my girl how to save at a very early age, mostly out of necessity because money was/is so tight. It has worked out WONDERFULLY! Rather than just asking me for money to buy things they ask me what chores they can do to “earn” money & then, they save their “earnings” until they have enough to purchase an item they really want. And this is the best part: last Dec. my 9 yr old asked for chores to earn $9,& thinking this was such an odd amt. I told her I’d give her enough chores to earn an even $10 but she declined stating she only needed $9. So, I assigned her chores, paid her the $9 & went on with my day. Later I began wondering what she had in mind to purchse so I began questioning her. I was flabberghasted with her response. For 6 months prior my daughter had been saving all her chore $, birthday $, report card $… Her goal? To save $100.00 by Christmastime so she could take it to our local Orphanage & give it those children so they could “have a good Christmas like the rest of us”! I knew right then & there that I was doing my job as a parent! Keep it Trent, there are unbelievable rewards ahead for you & your wife.

  36. Cate says:

    What we’ve done with our son since he was three was give him an allowance of $1 per year of age per week. Now that he is 4, he gets $4. Of that $4, $1 goes to “charity” (in his case, he puts it in the collection plate at church), $1 goes to “feed the piggy” (his piggy bank, which will eventually get put into the real bank with other funds we are saving for him) and then $2 goes into his wallet so he can spend as he wishes. He has chores to do in order to “earn” his allowance (making his bed, putting his dirty clothes in the hamper, helping clear the table, and helping with emptying the trash cans thru the house). I’ve recently been reading about a program called “the house fairy” (she has a website), and we are going to start adding more chores based on his age… and he’ll be given the opportunity to do additional jobs around the house in order to earn more cash.

  37. Erin says:

    Great story! Our daughter is about to turn 4 and we have been struggling with how to teach her these concepts as she now sometimes asks for toys she sees in the store, at friends’, on TV…

  38. aware says:

    There’s a free curriculum available for teaching kids up to age 5 about money and saving. It’s called “Thrive by Five”
    http://www.creditunion.coop/pre_k/index.html

    See also resources hosted by the Cooperative Extension System (community ed materials from multiple universities). They have a personal finance section at http://www.extension.org/personal_finance

    with a section on children and money at http://www.extension.org/pages/Financial_Security:_Children_and_Money

  39. viola says:

    One of the easiest ways for adults to have the “glass jar” is to do a net worth spreadsheet. Update it & keep track of it. It’s nice to see the growth over time, even if the beginning is depressingly negative in the red.

    I also enjoy lookin at my savings account balance go up every paycheck & my mortgage balance go down ever payment.

  40. Mel says:

    @ #13- that’s exactly what we are doing with our 3 year old. She wants a particular My Little Pony, so we told her fine, she had to buy it with her money. She has 3 chores that she has to do daily. (Plate in the sink, pick up toys, and help unload the dishwasher) She gets anywhere from 10-25 cents per day depending on if she did all three and how much whining was involved.
    Putting the money in the glass pony jar has really helped her remember to do her chores and why she does them. She now asks daddy if he “made money at work to buy things”… so baby steps, but we’re getting there.

  41. Mike says:

    Trent–I just wanted to say I really enjoy these types of articles, as well as most of yours I guess. I think you have a great writing style. Some FYI on me: I’m a recently new parent in my 30s myself. I’ve never had financial troubles like you in the beginning, but I’ve always been frugal and handled things a lot like you do. We definitely see eye to eye on a lot of things. I forget how I found your blog, but it’s definitely one of my favorites!

  42. E.C. says:

    When I was in preschool, my parents started giving me $1 a week in allowance. Around first grade, I decided I wanted a camera that cost $11. Every time we went to K-Mart I’d go and visit the cameras, and few purchases I’ve ever made compare with the joy I got out of using that camera. I found myself having to balance my desire to buy lots more film with the yen for new toys.

    I’m not a photography buff anymore, but I do remember the lessons I learned from having to manage money at such a young age.

  43. *sara* says:

    I remember emptying out my piggy bank when I was about 5 years old, counting up all the change, and going down to the toy store to buy a little model white horse with a real fur tail that was absolutely the most beautiful toy I had ever seen in my 5 year old little life. There was lots of satisfaction in saving up and spending my own money on it, far more than my parents just buying it for me.

  44. *sara* says:

    and i think it cost about 8 dollars also, now that i think about it

  45. facedestiny says:

    A great success. The early lessons are often the ones that stick the best.

    I wrote a similar post last week about helping kids to understand, and participate in, household budgeting. This takes the next logical step, from self interest to more outward looking budgeting. Hope you don’t mind me including the link here: http://facedestiny.com/blog/money/teach-your-kids-how-to-budget/

  46. Cate says:

    One last thought… my son wants everything he sees on tv, so everytime he piped up with “ooh, can I have that?”, I’d say “Sure. Save your money”. Now when he asked the same question I just say “Sure”, and he finishes the sentance “save my money”. It’s a beautiful thing!

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