Kids and Money, Part 3: How to Set Savings Goals

This is part three of an ongoing series we’ve launched on the Insider blog on “Kids and Money.” As you prepare to send your child off to college, you should also be thinking about how to foster in them the skills necessary to build financial independence. In this series, we’re discussing how students can earn, spend, save, borrow, and protect their money in a way that aligns with personal and family values. Type “Kids and Money” into our Search Box to find all installments of the series. As summer jobs come to an end and the new school year quickly approaches, now is the perfect time to be planning with your kids on how to divvy up any leftover summer job earnings. In our last article on Kids and Money, we looked at three simple steps to lay the groundwork for creating the right work/life balance: dream big, talk about what you see, and prioritize and plan. In that exercise, everything is still theoretical; you’re encouraging your children to simply share their dreams. The next step is to build the action plan around those dreams by setting goals. Many of us are familiar with the concept of SMART (Specific, Measurable, Achievable, Relevant, and Timely) goals. We know that to set ourselves up for success, goals should:

• be clearly defined: what, specifically, is the dream, who does it involve, which part does the goal-setter control, and why is the goal important?
• have benchmarks that measure progress and allow for mini celebrations along the way;
• be reasonable and realistic; is the specific goal achievable within the measurable parameters set?
• be consistent with your values and relevant to your long term plans; and
• be accomplished within a set time This is key to turning dreams into goals.

The SMART method of goal-setting easily applies to kids’ goals as well as our own, but some kids may need a little bit more support when it comes to setting and achieving money goals. When talking with families about this, I like to let a little of my New England accent shine through and encourage the SMAAHT method be used instead: Specific, Measurable, Achievable, Accountable, Healthy, and Timely. If we’re using values to drive our goals, these goals are already relevant. What’s not addressed in the SMART approach is accountability and, when navigating the conversations and behaviors around money goals, there is nothing more important than teaching children to be accountable for the decisions they make. If they decide to spend on video games, for example, the portion of summer earnings that was allocated to save up for a car, they have that amount less for a car when the time comes to buy one. Set expectations around choice and consequence as your kids are creating their goals, and revisit the conversation as needed (instead of using your own funds to make up the difference!). Healthy goals refer to the way your children are allocating their spending and savings. Spending 100% of their earnings is not a healthy way to manage money; nor is saving 100%. Instead, create a division of funds, so some money is being allocated toward the immediate, some may be going toward short-term goals, and some may be saved for the future. Try not to think of this as a rigid allocation; sometimes the immediate will require more funding, and, in other times, the future wins. Setting goals using the SMAAHT method can give your children the short-term motivation needed to achieve their long-term vision, while reinforcing the importance of maintaining balance within working, living, spending, and saving.