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Establishing a good habit is hard. There’s no more obvious evidence of this than the repeated failure of New Year’s resolutions.
But good habits are easier to keep if we believe in them and if they are part of how we see ourselves. In his book, Atomic Habits, James Clear captures this thinking with the example of someone who is trying to quit smoking.
When offered a cigarette, saying “No thanks, I’m trying to quit” isn’t nearly as psychologically effective as “No thanks, I’m not a smoker.” Mr. Clear says that you might start a habit because of motivation, but the only reason you’ll stick with one is that it has become part of your identity.
It’s the same with money. If you’ve been saving your allowance since you were a kid, contributing to your Registered Retirement Savings Plan with every paycheque comes naturally – it’s just what you do. Saying “I guess I should be saving for my retirement” doesn’t carry the same level of commitment.
If you have children, you have the opportunity to gift them something that will benefit them for life: a habit of saving and the identity of being financially responsible. Making saving a part of their lives now means it will be much more likely that they will continue to do so as adults, which can have an incredible impact on their well-being. Having an identity of being financially responsible can also encourage other good financial habits, such as paying bills on time and avoiding credit card debt.
So how can you help develop your child’s financial identity? Mr. Clear says that identities are developed through regular habits. If you write every day, you are more likely to believe you are a writer. If you run five times a week, you are likely to call yourself a runner. If you save regularly, you will think of yourself as financially responsible.
Developing a savings habit in children is a very reasonable goal. It does require some effort, though, and your approach has to be easy and satisfying for your child.
You’ve probably read the parenting advice about dividing your kid’s allowance into three portions: one for spending, one for saving and one for giving. This sounds great but in everyday life it’s unlikely your child is actually going to do this. It’s too complicated to do regularly and more importantly, young kids don’t generally understand the concept of delayed gratification.
To build the savings habit, your child needs to understand the benefits of accumulating money to spend later. Kids are wired for short-term gratification, as demonstrated in the famous marshmallow test. But they can learn to wait for things if they see that the positive outcome of waiting is worthwhile and reliable.
A simple way to do this is to pay your child a cash allowance, some of which they spend and some of which they save. Putting money into a clear jar every week makes the habit obvious and easy, two factors in developing successful habits. Once they have built up their savings, let them spend it. Don’t tell them they need to save it for their university education – that’s too big of a goal that’s too distant in the future.
For young children, you’ll need to let them spend their savings frequently. Let’s say you give your eight-year-old $10 a week. They can spend $5 at the corner store and the other $5 goes in the jar.
After four weeks, they have $20. Now that’s some real money that they can spend on something cool – Nerf gun darts, stickers, a hair band or whatever your kid loves. They see the empty jar and the item they bought and start learning about delayed gratification. Then start the cycle again.
As your kids get older, the time between purchases can lengthen. Over two months they have enough for a Lego set or a sweater. Over six months they can buy new gaming headphones or a pair of great shoes.
As they continue the cycle of saving and buying, the connections become wired in their brains and actually become part of their identity. As they grow up and start working, it’s more likely they will continue the habit.
Helping your child develop an identity of being financially responsible can have significant benefits over their lifetime. Financial well-being leads to lower stress and anxiety, which in turn leads to better relationships, higher energy levels and better mental and physical health.
Can you think of a better gift to give your child in 2024?
Anita Bruinsma is a Toronto-based financial coach and a parent of two teenage boys. You can find her at Clarity Personal Finance.