Tag Archives: Encourage saving

Feb 23 2012

Encourage Saving

English: The Miz's Money in the Bank briefcase

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Matching Contributions When Your GrandKids Save

I am always on the lookout for great ideas that help encourage my gradchildren to start (and keep) saving.  I recently heard about some parents providing a matching contributions to their children’s savings accounts and thought – Brilliance!  As many of you are aware,  part of leading your grandchildren into having great money habits is helping to steward your Grandchild’s saving.

The way this idea works is very simple: YOU provide matching contributions when your grandchildren decide to put money in a savings account.

How Much Should you Match?

At the most basic level, you can match the contribution, dollar for dollar, when they set their money aside for the future.

You may decide to offer a 50% match, so that if the child decides to put $3 in savings, you contribute another $1.50, to bring the total to $4.50.

Another option is to offer a sliding scale. If your grandchild sets aside 20% of his or her income from a job or allowance, you can match it dollar for dollar. If he sets aside 10%, you can reduce it to 0.5o cents on the dollar, and then at 5%, you can match with 0.25 cents on the dollar. This will encourage some children to set more aside.

Why Match?

Just like a contribution to a 401K, with a matching contribution, your grandchildren can see their money add up quicker. This can get them excited about saving, so that they can watch the bank balance grow.

Also, this practice can provide kids with a foundation that will lead them to take advantage of 401k match opportunities in the workplace. Plus, it will help build a nest egg sooner, and you only have to do some of the heavy lifting… think ipad, car, college. What big gift would you give if you could?  Now here is a great way to start contributing and give your grandchild stake in their own future as well.

Any Twists?

Of course you can shape this anyway you want to. On top of providing a matching contribution, you can also have a “vesting” period. With most employer-sponsored retirement account matching programs, there is a vesting period. Before you can consider the money contributed by the employer as truly yours, you have to be an employee for a certain number of years. You can set up a similar program with your grandchildren: they can’t withdraw money from the savings account until at least a certain amount of time has passed.

Requiring a vesting period is a good way to help your child delay withdrawing the money. Plus, if your child gets the matching contribution from you, and then withdraws the money two days later, the purpose of the lesson has been defeated. However, if you are consistent in your efforts, and you provide a reward that your children can see grow, there is a stronger likelihood of the lesson sinking in.

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