By Paula Pant
You want to give your kid the world. You want to make sure they have the tools and opportunities they need to live the happiest, most successful life. So you teach them everything they'll need to know, from how to tie their shoes to how to play well with others.
But are you teaching them about smart money management?
Even very young children can grasp basic financial principals, and those principals can become the foundation of a happy lifelong relationship with their money. The following tips are a great place to start.
Tip #1: Set Up a Chore System
Lesson: Money doesn't come out of thin air (so you'd better spend it wisely).
Want to help you child develop a healthy relationship with spending? Start by instilling the correlation between hard work and money. This shows the child that money doesn't appear out of thin air. (This is a lesson many adults could actually stand a refresher in, as well.)
Set up a chore chart that shows your child how much she can earn for each chore she completes. Increase the complexity of the chore and the pay rate based on your child's age.
Your second grader, for instance, might be able to earn 50 cents for loading the dishwasher, while your sixth grader can earn $5 for mowing the lawn. If your child has their eye on a hot new toy or other prize, they can have the option to perform more chores to save up for it.
There is some controversy over the pay-for-chores model. Some parents feel their children should be expected to help around the house without being compensated for it.
If you feel this way, you can still do a modified version of the chore system by setting certain chores as the baseline requirement for your child as a contributing member of the family. Cleaning up their toys at the end of the day, taking the dog for a walk or helping clear the table after dinner could be non-negotiables. Anything your child chooses to do above-and-beyond those standard chores can be rewarded through pay.
Tip #2: Give an Allowance
Lesson: Every expense carries an opportunity cost.
As an alternative to the chore system, you could give your child a monthly allowance. The amount can increase as your child gets older.
But this allowance shouldn't be purely "supplemental" money. Clarify what items you'll pay for and what expenses your child will need to budget for. Anything they want (beyond what you're willing to cover) will have to come out of their allowance.
When your child faces a spending decision, remind them of the fact that their budget has to stretch for the whole month. They're more than welcome to blow their entire allowance playing games at a friend's Chuck E Cheese birthday party, but then they'll have to go without any spending money for the rest of the month.
This teaches them trade-offs: "If I buy this, I can't buy that." This lesson will serve them well when they find themselves facing heftier financial choices, like blowing their latest paycheck on a new smartphone or saving up to buy a house.
Tip #3: Use the "Three Jars" Method
Lesson: Prioritize and plan for your spending.
Kids will be kids. (And some adults will be kids, but that's another post in itself.) Chances are, their first instinct when they have some cash in hand will be to blow it on something fun, like toys or candy. The "three jars" method will help them learn the importance of allocating their money for different goals.
Whenever your child is paid (or receives money, like that birthday check from Grandma), show them how to divvy that money up into three separate jars:
• Spending: A treat from the ice cream truck, going to the movies with friends, etc.
• Savings: Whatever goal your child is currently working toward. This could be anything from a new Playstation to a pair of those sneakers every kid's dying for this season.
• Sharing: Instill the idea of charity in your child from an early age by helping them choose a cause they'd like to share their money with: donating to a local animal shelter, buying supplies for a soup kitchen, etc. Helping your child realizing how fortunate they are, and teaching them to share those blessings with the less-fortunate, will help them put their finances into perspective.
As your child adds to each jar, they can watch their "balance" grow, reinforcing the notions of patience, hard work and ultimate payoff.
In the end, a happy, healthy relationship with money begins early. It's never too soon to start teaching your child the lessons that will shape their financial future.