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I still remember walking into the bank with my dad and little brother in tow. I was finally going get my very own bank account! Without understanding what I was doing, I handed over my $5 and received a brand new, shiny debit card.
Even as a child, I was always been a ‘spender’. When my brother would receive money for a gift he would hoard it away and save it. When I would receive money, I would immediately run out and spend it on candy or a trinket I didn’t need.
Learning personal finance at a young age could have made it easier to manage my finances as an adult. While learning how to budget as an adult isn’t hard, I missed out on the opportunity to build good money habits early in life. As we all know, it is much harder to change a bad habit then it is to have good habits from the very beginning.
Did you know that many experts recommend that you begin teaching children about money as soon as they turn 3 years of age? If you want to teach your child how to be a ‘saver’ it never hurts to start early.
Here are 3 ways to help you teach your children about money:
An allowance teaches children to be responsible with their money and that they need to work hard to earn it. Giving your child an allowance is a very simple way to teach them about money management.
First, you need to decide if when you will give out their allowance: this could be weekly or even monthly. The timing of the allowance doesn’t matter too much.
How do you know how much money forms a fair allowance? The general rule of thumb is $1 per year of age on a weekly basis. So a 3-year-old will earn $3 per week and a 12-year-old would earn $12 per week. Of course, you can adjust this amount up or down depending on what you feel is reasonable.
Now that you know how much allowance you will be providing, you need to decide the terms of the allowance. According to Money Crashers, there are many different types of allowances:
The Unconditional Allowance
This consists of providing a set amount of money to your child on a regular basis. The allowance is not tied to a specific behavior. Instead this allowance is handed out weekly, bi-weekly, or monthly. This can help children to pre-budget for money they will receive in the future. For example, your child may be saving to buy a Lego set. If they are expecting to receive an allowance in the future they will be able to calculate when they will have saved enough money to buy the set.
The “Pay As Needed” Allowance
With this “allowance” kids ask for money as they need it, rather than receiving a set amount of money on a scheduled basis. There are some disadvantages with this type of allowance. These disadvantages make me question whether this method is a true allowance.
Even if the allowance is contingent on the fact that the child has been behaving appropriately, there is no direct correlation between the behavior and earning the allowance. This allowance structure also lacks consistency, which does not help to teach children about budgeting future income.
The “Earn Money for Chores” Allowance
This type of allowance is very common and is the one most of us received when we were children.
With this allowance structure, children perform a specific set of chores, which allows them to earn their money for the week. The benefit of this allowance is that there is a direct correlation between the work done and earning the money.
You can choose to use one of these allowance structures or you could go ahead and create a hybrid of the three. Regardless of what method you choose, it is important to sit down with your child and explain the rules of their allowance.
- Savings Jar
Now that your child is receiving an allowance, you can put in place the 3 Jar Saving Method. This is one of the easiest methods to teach children about money management beginning at a young age.
Using clear jars, or a product like the Moonjar, you can show your child how to start budgeting. Label each jar with saving, spending, and giving. The jars can work something like this:
- The saving jar help to teach children about long-term investments. This is the jar you put money in if you are saving up for something big, such as a new bike.
- The spending jar should contain money that can be spent however your child wants to. This is should be smaller purchases, such as a toy car or candy.
- The giving jar is money that can be donated to charity. Each month you and your child can take this money out of the jar and donate it to a charity of your choice.
As your child collects money, either from you or as a gift, you can work with them to assign money to each of their jars. A clear jar allows your child to physically see their money grow each week. Seeing their money grow week over week can provide motivation to continue saving.
Monopoly is a game that has been played by many families around the world since it’s release in 1935. Originally created to teach players about economics, Monopoly also teaches a number of important financial concepts.
- Basic mathematics – playing this game will require some basic math skills. Kids will need to learn how to purchase properties and how to make change. This is great for teaching addition/subtraction and for learning about different denominations of money.
- Emergency funds – children will quickly learn that they need to keep some cash on hand. If they spend more money than they earn the game will end VERY quickly.
- Budgeting – to be successful in Monopoly your child will need to learn how to budget.
The Game of Life
Since it was first introduced to the world more than 150 years ago, The Game of Life has been a staple for many children. Players attempt to accumulate the largest net worth while travelling around the board and making important life decisions. The Game of Life teaches many of the same concepts as Monopoly. In addition to the concepts listed above, children will also learn the effects of education and career choices on income and the impact of unexpected financial emergencies.
These are some of the methods you can put in place to teach your child about money. Do you use any of these methods at home? Or do you have other methods that you use?
About the Author
Amanda Swystun is a lover of budgets, Excel connoisseur, and a self-proclaimed tax nerd. She spends her days as a tourism agent sharing her love for her prairie city. Her blog Penniless Prairie Girl keeps her busy in her spare time.