The Value of a Dollar
It’s tough to learn about money when you don’t have any. Giving kids an allowance makes an abstract concept real and allows them to test smart - and sometimes, not so smart - money strategies. If you’re not sure how much to give your child, a good starting point is $1 per year of age, per week. You can make adjustments based on your situation - and your child.
One question you’ll need to answer before you start doling out an allowance is should you give money for nothing or in exchange for work? Parents have varying philosophies on this one. Simply giving an allowance will help you teach your child how to manage money, but offering money in exchange for good behavior or doing chores will also teach your child the value of a dollar - If they have to work for it, they may value it more.
Save for the Future
Conventional wisdom holds that 10 percent of all income - earned and gifted - should be socked away for the future. Teaching children early on that a certain percentage of their money should always be set aside - and practicing consistency with this philosophy - will help them establish smart money habits for the future.
It’s similar to the adult concept of making savings automatic (setting up direct deposit of a certain amount of income into savings). It may be difficult at first, but after awhile, you don’t even notice it. And ultimately, you’re building a much more secure future.
When you think your child is ready, it’s a good idea to open up a bank account in his name. Putting money into a bank account will help your child resist the temptation to spend needlessly and in the case of a savings account, gives you the opportunity to teach him about the power of interest. It’s also fun for kids to watch their money grow in a bank account - like filling a coin jar all the way up to the top.
Good Habits Pay off
Children learn a lot by observation. If you’re careless about paying your bills, splurge on luxuries you can’t afford and give into temptation too easily, chances are your child will develop similar money habits. Give your child a good example to follow.
At the appropriate age, go through household expenses with your child and show him how you pay bills by certain deadlines each month. By going over your budget with your child, you can demonstrate the importance of being responsible with bills and debt, and the consequences of late payments.
When mentoring your kids about money, make sure you’re practicing consistency. It’s a good idea to sit down with your spouse to make sure you’re on the same page about money management and what lessons are most important to instill in your children. It’s also important to talk to other family members to ensure that they respect the lessons you’re trying to teach. Consistency will increase the likelihood that your teachings will stick.
Importance of Charitable Giving
Helping those in need is an important money lesson that parents often overlook and one that can be difficult to teach. Buying a toy, for instance, is an easy concept for a child to understand, as they can see the result of their purchase. However, giving money to a “cause” in which the child may not see a tangible result can be tough for a young mind to comprehend. But it’s important to demonstrate the importance of giving back to the community at a young age in order to establish a lifelong habit.
Giving money to those in need may come out of the child’s allowance or may be a separate fund. One win-win tactic is to give your child a penny - or a nickel, dime or quarter depending on your situation - for each minute he spends reading or doing an educational activity. Keep a chart to track progress and at the end of each week, tally up the earnings and give the sum away to those in need. As extra motivation, allow your child to pick the charity - whether it’s a family in need, church or religious institution, or another philanthropic organization. Make sure to talk to your child about how giving income away makes him feel and as much as possible, show him the good he’s doing for others.
Frugality Is Fabulous
You don’t have to be a Scrooge, but teaching children about smart spending, including the difference between “wants” and “needs,” sets the tone for their future. There are several ways to accomplish this, including making it a rule that all non-essentials - games, jewelry, toys, candy, etc. - are on the kid’s dime. You might be amazed how quickly your child learns about careful spending when he has to use his own money to buy “nice to haves.”
Teaching frugality is an everyday lesson and can come in the form of small actions as well, like not giving in to grocery store check-out lane purchases, instilling in children that eating out at restaurants is a treat not a given, and not immediately rushing out to replace an item that breaks.
It’s never too early to start teaching your kids smart money habits. Children are like sponges and whether you intend to or not, are learning about money from you anyway. It’s important to take the time to sit down with your kids and show them the right way to manage money. Your effort will ensure a more secure future for your children.