During the course of a year, my kids and I turned our dining-out habit into a trip to California. All it took was some back-of-the-envelope math, a goal we all wanted, and the understanding that every purchase represented a choice. The result was three days in San Diego, and a lasting change in the kids' attitudes about spending and saving. If you've got kids, a willingness to save along with them, and some nonessential spending in your budget, you can use a similar approach to demonstrate the power of delayed gratification and spending choices by working toward a fun goal.
1. Identify a family spending category you want to change
Maybe your kids blow their allowances on games; or perhaps the family buy-it-now video budget needs trimming. The first step is to figure out how much that habit costs during a month or a year.
Fast-food and takeout dinners were a growing expense for us. The kids like burgers, and I'm a fan of time saved. But my kids have outgrown the kids' meals, and takeout for three was running at least $20. Sometimes, they paid with chore money; but mostly, I picked up the tab. A quick tally showed two "little" convenience meals a week were going to run us a cool $2K during the course of a year.
2. Point out the lost opportunities that spending represents
When I told the kids how much we were on track to spend on takeout during the year, they were stunned. Then I asked them what else that amount of money could buy. We came up with "10 Wii consoles," a top-of-the-line gaming computer, or an airfare-and-hotel package.
Once you know what your family's casual spending costs, you can brainstorm with your kids about things you want instead -- maybe a day of laser tag, or a week's summer camp tuition. Kids will act in their own financial interest once they're clear on it, and take some real responsibility. Financial literacy expert Carrie Schwab-Pomerantz advocates letting tweens use their money to work toward real goals, and she says they'll often find ways to cut spending on their own.
3. Set a team goal that requires change to achieve
My kids wanted to go to San Diego, and no one really wanted 10 Wiis. I told them we could choose a vacation or a year's worth of takeout. When they chose the trip, I agreed to help make it happen, which meant I'd be changing my habits, too. This is important. It's one thing to tell your kids to save for a goal; it's another to show them you're making choices, too.
If your family can't agree on one big goal, choose two or three smaller goals instead. In fact, small short-term goals will work better with younger kids. But each goal has to represent a real choice between current spending and goal savings. Otherwise, there's no reason for anyone to change behavior.
For a detailed breakdown of how to set a family savings goal, check out the American Bankers Association's family savings goal guide.
4. Actually set the money aside
Make sure the money gets saved. We put ours in a savings account, but a plastic jar works, too. This is an approach that Dave Ramsey recommends for young children so they can see their savings grow. Either way, make the money off-limits for other expenses.
5. Remind yourselves of your goals
Spending habits can be tough to break. The kids didn't stop asking for fast food, and I never entirely relinquished takeout as a time-management tool. But each purchase became a conscious choice between an immediate payoff and an important goal. Sometimes, we decided burgers were the better deal; but most of the time, we chose vacation savings. This is the "tie a 'no' today to a 'yes' tomorrow" strategy on Time's list of financial independence lessons for children.
6. Collect your reward
My kids had a great time in San Diego, and were proud of the role they played in getting us there, both by saving their own money, and by not asking me to buy burgers. When kids realize the power of delayed gratification, it makes a strong impression. It's also a crucial skill for saving money as an adult, as frugality and personal finance expert Trent Hamm writes at The Simple Dollar.
The habits they make in order to save money tend to stick, too. Even though our vacation was a few months ago, the kids' dine-at-home habit is still going strong. That's a money-saving practice that can serve them -- and me -- well in the years to come.