A reader asked me recently what I suggested as a good percentage for each of the 4 money choice areas: save, spend, donate, invest. Her daughter loved to donate, but was also good at saving and had already saved up over $1,000 by age 11. (Bravo!) But she was intimidated about investing (as many are), so she wanted to know how to get her and her daughter started with each of the four choices.

Ultimately, percentages are not necessary. Let me tell you why. Children instinctively want to give fairly to all four choices and will always place money in the choices where they feel they can be successful at realizing a goal. It’s the realization of a goal that is the most fun! Based on the fact that this reader’s daughter loved to donate, I’d say that she clearly has a goal for that money. She obviously likes the way she feels when she donates. That same feeling can be had with all the money choices. But your child may need a little help setting other money goals, so I’d suggest that both child and parent talk it through.

Not every 11 year old will have one thousand dollars in savings. But, the amount is not as important as being able to answer the all-important question of what you are saving for. The point is not to hoard, but to accumulate or save for a reason. It’s OK if your child’s reasons change over time. They simply need to get a clear vision around their short-term goals — their saving goals. Savings are for things they might want a year from now or so.

Short-term savings goals, and the success of attaining them, actually set the tone for long-term investing. Success breeds success. Many parents ask young children to save for college. I think that this is a bad idea. That goal is much too far out in the future to keep kids engaged for long. They need to achieve some savings goals first before they can begin to appreciate long-term investing.

Long-term goals are things we want 10 or more years from now — and that is why we invest. Money placed in the stock market over this period of time will undoubtedly earn substantially more than if it simply sits in a bank account earning interest. Getting started is as simple as purchasing one share of stock. Using a company like sharebuilder.com to make your purchase will reduce the transaction fees associated with the purchase of a single share of stock. Discuss your child’s long-term goals and estimate how much money they are going to need to achieve them. Then help them plan how often they will make contributions to the investment category.

To begin investing, find a company that you and your child may like to track together. Don’t worry about how much you know about investing. You will not go bankrupt by purchasing the odd share of stock here and there. The company that you select does not have to be the next high-flyer. The point is to simply find a good company that your child is intrigued by so they get comfortable with the thought process involved in picking a stock. If it’s a local company then you may be able to attend the shareholders meeting which could be very enlightening for both of you.

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Written by Susan Beacham
Susan Beacham founded Money Savvy Generation in 1999 after almost two decades in private banking and investment management complemented by considerable time teaching at the elementary level.

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