How do you teach your children about money?
First, remember that a little bit goes a long way in this area with children.
When they are young (pre-school, early elementary), keep it simple and concrete. They will likely have a very limited appreciation for the concept of money, so teach them a few basics that will carry over as they get older.
1. Teach them that money is limited. Don’t give them everything they ask for (even if you can afford it). An allowance is fine, but limit it. You want them to realize they have to make choices in how they spend their money. Some will even learn to save now so they can buy more later. There are plenty of adults that never learned this lesson!
2. Teach them that money is to be handled wisely. Three jars are very effective teaching tools here. Label one “sharing,” another “saving” and another “spending.” You can pick your own ratios, but we used 10%, 20% and 70% respectively as the amount of each dollar that went into each jar. The source of the jar funding might be allowance, gifts from grandparents or chore income (if you pay your children for doing any work around the house, which leads us to…)
3. Teach them that work has financial value. Some chores are done simply because you are a member of the family. But it’s also a great teaching opportunity to have some chores that may or may not be voluntary, but for which they get paid. Some parents resist this idea, but that is the ultimate arrangement in the world for which you are preparing your child. So why not help them understand it now?
As your children get older (middle and high school age), you can deepen their understanding and appreciation of the basics you taught them earlier. Consider these tips for older children:
1. Let them work more. Your teen will learn a lot in an afternoon or summer job. The summer before I went to college, I worked in a factory stacking sheet metal. I think mostly out of sheer fear that I might have to do that the rest of my life, I made a 4.0 my first quarter at Louisiana Tech.
2. Let them pay for more. You’ll probably pay for the basics as long as they are under your roof. But as your teen gets older, their tastes may both expand and get more expensive. It’s a great idea to explain to them what you will provide (food, clothing and shelter are the three biggies), and what they will need to provide for themselves through their own work. Examples might include some clothing, entertainment, music, electronics, paying for some or all of their phone plan, recreational activities, etc.
As your child ages, you’ll gradually transition from being in total control of what they do to being able to offer some influence over the choices they make. They will also transition from needing that control (younger children) to wanting to be more and more independent (teen agers).
Money offers a great venue for both parent and child to learn as they both go through the transition together.
Your thoughtful plan for how you will teach your child about money is one of the best investments you’ll ever make.