One of the most important lessons you will ever teach your child is how to handle money–and that’s a lesson that begins in early childhood. By working with your child now, you can cement the financial lessons you want them to learn early in life. Ultimately, this will help them manage their finances much more successfully as adults.
1. Start as you intend to go forward.
As adults, we’re encouraged to put 10% of our income into savings each paycheck. Starting your child off this way is a great opportunity to cement the concept of savings in their heads while they’re still young. When your child receives money, whether as part of their allowance or as a gift, encourage them to put a percentage of it in their savings account for later use. This can be a long-term savings account to help them pay for expenses in college or a short-term account that will allow them to save up for big purchases that they really want. Over time, that account will really start to add up!
2. Let them save for big purchases that they really want.
Avoid the temptation to buy your child everything they want the moment it releases. Instead, give them the opportunity to save the money they’ve earned and been given–an allowance, birthday money, even tooth fairy money–toward those big purchases. While it’s perfectly fine to give your child gifts, the satisfaction of working for something they really want is a gift of its own.
3. Try a unique take on chores and allowance.
Instead of offering your child a blanket amount of money for the chores they’re assigned to complete each week, allow your child to decide how much they’re going to earn. Assign a specific payment to each chore: a quarter for making their bed every day, for example, or a dollar for cleaning out the cat’s litter box. In many professions, your child will find that they are able to earn based on what effort they put forth, so learning early how to plan ahead when they want to make a purchase will benefit them in the long run.
4. Talk to your child about your spending habits.
Many young children, in particular, start to think that their parents are made of money–especially since “money” comes in the form of a plastic card that is scanned at checkout, rather than actual cash that has to be handed over. Instead of creating the illusion that Mom and Dad always have plenty of money, let your child see your thought processes. Explain that you can’t stop for dinner out on a particular evening because you need to be able to pay for their latest activity fees. Discuss why you coupon or shop sales at the grocery store. This will help your child develop a more mature perspective of money and may actually help increase their own financial responsibility.
5. Discuss responsible purchasing.
For some kids, especially those who only receive money for gifts rather than having a regular source of income, money in their hand is money that they should spend as soon as possible. They rush out and buy the latest knickknack or the first interesting toy that they lay eyes on–and promptly lose interest in it within a matter of days. Instead, discuss responsible purchasing with your child. Encourage them to hold on to their money until there’s something that they really want to buy, rather than spending indiscriminately simply because they can. Talk through purchases before they make it: is this something they really want, or something that just caught their eye? If possible, encourage your child to wait a day before making a big purchase so that they have time to really think it through.
Teaching your child financial responsibility is a process that lasts throughout their childhood and into their teen years. The younger you start, the deeper you can embed that sense of responsibility. The more you talk about money with your child, the greater the likelihood that they will develop the skills they ultimately need to manage money successfully.