Parents: how did you learn about money? Most of us learned from two sources: the values passed down to us and our own mistakes. Because your children will learn the same way, your job is to instill enough of the right values that the mistakes they are bound to make will be minimized. So how do you start?
Your goal should be to teach your children two things about money: where it comes from and what it should be used for.
Where Does Money Come From?
One word: work. So how do you teach your children that money comes from work? You DON’T give them an allowance, which teaches them that they deserve money simply by existing. We paid our children for the chores that we expected them to do. Of course the chores were appropriate for their ages. You will need to help your three year old clean his room and give him lots of high fives if he just does 10% of the work. Pay him immediately (so he can equate the payment with the work) by wadding up a dollar bill and shoving it into a clear plastic container. Keep the container highly visible in his room so he can watch his earnings grow.
As our children grew older, we tracked their chores on a chart, giving them check marks at the end of each day for the chores they accomplished that day. We paid them weekly (just like a real job) for the number of checks on their chart. They learned a lesson: no check marks = no money.
"What", you may be thinking, “if they simply refuse to do any chores?" In our household, they received another form of payment that taught them the consequences of not honoring their parents. They quickly learned that getting paid with money was better.
One caveat: because you don’t want your children growing up with an outstretched hand every time they lift a finger around the house, you should require some responsibilities for each family member because she is a family member. Use your own judgment, but some examples are setting the table, feeding pets and making their beds. Being one of six children with two working parents, I learned that if my clothes were going to be ironed, I would have to do it myself.
What Should Money Be Used For?
There are only three things any of us can do with money: we can SAVE IT, SPEND IT or GIVE IT AWAY. In order to help your children develop the proper balance of these three, you should label three envelopes as SAVE, SPEND and GIVE AWAY and then show them how to divide their earnings into these three envelopes. You can create great teachable moments when you take your child to buy something she has saved for. As she pays the cashier with her money from that SPEND envelope, she realizes how much work it takes to buy a certain item. She even learns about taxes.
We recently sat next to my grandson in church as he put HIS giving envelope in the collection tray. He sported a huge smile because he knew HE was giving HIS money that HE had earned. I sported a big smile too, for I knew that he was learning valuable life lessons at an early age.
At an appropriate age (12-14), you should consider helping your child open his own checking account (NEVER give a child a credit card!). You could then supplement that account with money that you would be spending on your child anyway, such as clothing money. Then let him be totally responsible for purchasing his own clothes. If he knows he has a limited amount of money to spend, he will learn to be a smart shopper. My children became regulars at thrift stores and consignment shops.
You can make your own variations as your children grow up, but this is a plan that you can start on at a very early age. Your children will thank you some day, and you will enjoy watching them handle money responsibly as they grow through their teen years into adulthood. And I have a hunch that they will some day thank you.