Hopefully, by now, you’ve realized that getting your child to save is an important financial lesson. When a kid should start this process can be a little confusing, however, as families can have drastically different ways to approach it. Let’s break things down a little so you can decide whether your child is ready.

When Brains Meets the Piggy Bank

Effective saving requires that kids have some grasp of what money is worth. This is really a two-part concept. First, there is the aspect of understanding the difference between different coins and bills (denominations). This by itself requires the ability to visually distinguish between the different types of money and to count by any of those denominations. Your child might be able to do the former of these things by as young as two or three, but counting singly or in multiples usually does not start to settle in until around age four to six. Secondly, your child has to have a grasp of relativity—that is, the market value of the money, such as $1 buys a bottle of water. This comes only from exposure to the market itself, from being able to make purchases with help.

Once your child has cognitively developed enough to understand denominational value, single counting, and multiples, you then have to determine whether he can keep track of what he earns or has given to him. On the most basic level, this means simply being able to keep the money in one place—you might be surprised at how little ones love carting or stuffing coins and bills in pockets, couch cushions, Princess purses, and even underwear drawers. On the more advanced level, it means being able to notate gains and losses in some way, whether it is with a simple coloring chart or an incredibly thorough spreadsheet.

Mommy, Can I Have…

Eventually, kids start developing their own interests and preferences, and they start seeing what is available in stores and other people’s houses. That inevitably leads to them asking for what they like. This is the perfect time to introduce them to the idea that not everything they want has to come from you, that they can acquire purchase power, too. If your child is repeatedly asking for Some New Thing, saving toward a specific goal and buying an item on his own might be the answer.

Compounding, Compounding, and Compounding More

Financial experts around the world agree that compound interest—essentially, interest that has accumulated not only on the principal of an investment, but also on the interest that has already been earned—has enormous power. For instance, suppose your child can put away $5 a month into an investment where compound interest is available, and that the interest rate is compounded just once a year. If the interest rate were 8% (roughly the 2013 rate for U.S. bonds and mutual funds), in 10 years, your child would have $869, compared to the $600 he’d have saving $5 a month without compound interest. At 25 years, he would have $4,386 versus $1,500, and at 50 years, he would have $34, 426 instead of $3,000! These numbers show that, the longer your child saves in a compound-interest account, the more he will profit. From this standpoint, it is never too early for him to start putting something away.

The Bottom Line

When a kid should start saving is determined in part by how much he has cognitively developed and what he has been exposed to. His own wants also can signal that it’s time for him to start setting some money goals and putting funds aside, too. With these considerations in mind, most children are good to start saving at least small amounts by the time they get into school. Even so, children are at an advantage compared to adults in that they can utilize the power of compound interest better, allowing their money to sit in interest-bearing investments for a longer amount of time. It can be well worth it for you to save on your child’s behalf as early as possible for this reason. You can gradually transfer responsibility for what you’ve saved for him when he is able to