Most of our habits, both good and bad we learn in childhood. By encouraging your child to save money early in life you are preparing them for a lifetime of financial responsibility and prosperity.

Einstein once referred to compound interest as one of the most powerful forces in the universe! A great example of the power of compound interest comes from the selling of Manhattan for a handful of beads:

In the early 1600s, the American Indians sold an island, now called Manhattan in New York, for various beads and trinkets worth about $16. Since Manhattan real estate is now some of the most expensive in the world, it would seem at first glance that the American Indians made a terrible deal.  However, had they sold their beads and trinkets, invested their $16 and received 8% compounded annual interest, not only would they have enough money to buy back all of Manhattan, they would still have several hundred million dollars left over. That is the power of compound interest over time.

Warren Buffett, one of the richest men in the world, uses a snowball analogy to explain compound interest:

“Life is like a snowball. The important thing is finding wet snow and a really long hill”

The really long hill referring to the effect of time on the growth of money.

Here is a simple example which highlights the importance of encouraging your child to save. Saving as little as £10 per week over their working lives of 40 years with an interest rate of 5%,  they would accumulate £61,040. However if they started 10 years earlier, that would be £106,740. That’s a difference of over £45,000 from an extra investment of £5,200.

Given that time can play such an important part in the growth of money, the earlier a child starts his or her savings habit, the greater will be their return. Here are 5 top tips how to encourage your child to save.

1. Lead by Example – have a jar or money box where you deposit your spare change. Children learn more by what you do than what you say. By wanting to follow your example your job is half done.
2. Add interest – when your child is old enough to understand the concept of interest you can act like a bank and top up their savings. Keep the numbers simple by adding 1 coin for every 5 or 10 they save. It’s a good opportunity to introduce some simple yet important money lessons.
3. Open an account – go with your child to the bank and open a savings account. Then make an event of going and making a deposit. Your child will make positive associations with the act of paying in money.
4. Save for a purpose – it’s much easier to create an interest in saving (excuse the pun), when there is a strongly desired outcome on the end of it. Encourage your child to save for a holiday, a particular toy or something they value.
5. Consistency – For saving to become a habit it must be done regularly and often. Then gradually, like brushing your teeth it becomes automatic and habitual. If you give an allowance encourage your child to immediately put some money away. If they get extra for chores or birthdays encourage them to allocate a percentage to saving.

In all the above examples it should be emphasised that for the money saving habit to stick it must be enjoyable and rewarding. Just as compound interest will reap rewards over time, so too will the investment in time spent to encourage your child to save.

Daniel Britton is a financial education specialist and author of the  inspirational stories for children Financial Fairy Tales books which make learning about money fun for younger readers.

Visit The Financial Fairy Tales today for a free digital download of Dream Can Come True the first book in the exciting series.

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The majority of people inherit their beliefs and values from their parents. So along with Mum’s eyes and occasionally Dad’s nose, we are likely to become conditioned by their set of rules around money, which in turn came from their previous generation. This may work very well if your surname is Rothschild or Getty but for most of us we may be carrying around a set of rules and beliefs which no longer serve us.

Think about your own money lessons from childhood. For example, if your parents or grandparents experienced major economic events such as the Great Depression or the austere years during and after WWII, then these environmental factors will have made a lasting impression on your financial beliefs. There may be “positive” values such as thrift, saving and security or “disempowering” beliefs around scarcity, fear and an aversion to risk.

The question is, are these deep routed beliefs helping or hindering you today and what messages are you passing on to the next generation and teaching your children about money?

In the Industrial age the perceived wisdom was to study hard, get a good job and then try and hang on to it until the gold watch. People spoke freely of the ‘job for life’ and concepts such as downsizing or outsourcing were relatively unknown. The underlying beliefs were one of scarcity and lack. A safety first approach which encouraged the majority to save for their retirements with the comfort of a social security safety net.

In the Information age where the world has become in many ways smaller and flatter, both the job security and the safety net are disappearing. In preparing the next generation and teaching your children about money it is important to consider the skills, attitudes and beliefs that will be necessary to succeed.

Let’s consider an example of two children from the same neighborhood, whose parents are of a similar age and enjoy similar incomes and lifestyles. In the Smith’s household finances are discussed in hushed tones and never in front of the children. The kids witness arguments over credit cards and the stress of unpaid bills. If the child asks for things they are met with replies of “money doesn’t grow on trees” or “we just can’t afford it”.

Compare with the Jones household, here money is discussed more openly, with budgets set and adhered to. Bills are paid on time and a little is saved every month. When the child asks for treats they are encouraged to pay for it themselves out of an allowance, or to consider whether having ‘this ‘is better than ‘that’. They learn to understand the value of things as well as the price. They may be given the opportunity to work around the house or to explore other ways of earning money.

In this simple scenario it is clear which child has the better chance of growing up with empowering beliefs about money.

Children unquestionably pick up many of their values from their parents, either through conscious actions or unconscious awareness. From an early age they learn more from what they see and experience that what you may say. Through a combination of financial education and creating an environment of opportunity, your children will be better equipped for financial success. By setting an example of a positive association with money along with practical approaches I, such as saving and budgeting, you will be teaching your children lifelong money skills.

The Financial Fairy Tales series of books and resources can develop a child’s positive association with money and teaches some of the skills and values that help create a brighter financial future.

You can obtain a free digital copy of Dreams Can Come True from the Financial Fairy Tales website http://www.thefinancialfairytales.com

Daniel Britton is an author, speaker and consultant on the subjects of financial literacy and personal development. His Financial Fairy Tales series teach kids about money through fun and inspirational stories.

Today Money Fast For Kids interviewed the Owner of www.TheFinancialFairyTales.com , during our chat Dan revealed all sorts of great answers to the questions we had (such as):

1. Q: Who is your primary target audience for the Financial Fairy Tales?  ie: (who would appreciate these books most apart from the children themselves).  Is it mostly parents and teachers or are there others?
2. Q: What got you inspired to develop this Children and Money industry/line of business?
3. Q: How did you come up with this concepts for these childrens’ money books?
4. Q:  What sorts of lessons do your Financial Fairy Tale books impart to children?
5. Q: Why do you think these lessons are important for children between the ages 5-10 years?
6. Q:  Apart from your website http://www.thefinancialfairytales.com/ is there anywhere else people can find your books (libraries, major bookstores, amazon.com etc)
7. Q:  What sort of goodies can one find in your newsletter?

Daniel shared a lot more too!  He’s a fabulous speaker with a brilliant mind about money matters.  We are very proud to associate with him.

You can listen to the Money Fast For Kids / Financial Fairy Tales interview here.