When it comes to things like diet, sleep, and social interaction, most parents can stress the basics pretty easily: eat your vegetables, take your nap, and play nice with others. But there is, unfortunately, one thing that many parents forget to teach their children, maybe because they see it as too “big” a thing to worry about at such a young age: How to be responsible with money.
After all, most three-year-olds aren’t rolling in the cash. They may have a little piggy bank or a few dollars saved in an old birthday card from grandma, but nothing that merits a lesson in financial responsibility.
However, in this article, we’re going to explore 3 ways you can teach children (of any age) to be responsible with money so that they are much better prepared to handle it responsibly when they get older.
Make ‘em work for it
At a certain age (as early as two years old!), kids can start helping with chores around the house. Things, like mowing the lawns or washing the kitchen knives are daunting tasks for little ones. But sweeping, putting stuff in the trash, and making their bed are doable. Get your child used to the idea of earning money, so they begin to understand its value.
Rather than just setting up a chore chart where everything is paid for, create a mandatory chore list that needs to be done for free each week. Then, make a separate “paid chore” list that is optional but a bit harder. If your child wants a toy or a special candy, they can complete the chore from the paid list after completion of a mandatory task.
Having two separate lists (one paid and one not) teaches your child financial responsibility while also teaching them how to take pride in other tasks (like keeping their room clean) without expecting a paycheck.
Open a bank account for them
Opening a bank account for your child can be one of the best ways to teach them about finances. If you can, take your child with you to the bank and have them sit down with an actual employee to tell them what to expect with their account. Sometimes, kids need to hear things from other adults to take them more seriously.
Learning about compound interest, the importance of saving, and keeping a minimum amount in their checking account may go in one ear and out the other when coming from you. But from a professionally dressed employee at the bank (with their own desk), it might be a different story. Your child will likely absorb more information and, who knows, might even teach you a thing or two by the end.
Teach them to budget but let them make mistakes
All parents are probably aware of the importance of teaching your child how to make a budget. Once they’ve earned their weekly allowance (or gotten another birthday check from grandma), it’s good to let them know how to divide that money in the most responsible way. One common method is taking three jars and labeling them as follows: saving, spending, and sharing. Sit down with your child and explain the importance of each. Then, decide what percentage should go in each.
If they make $10 for their chores, for example, they may decide 40% goes in savings, 40% goes in spending, and 20% goes to sharing. At the end of the week, they’ll have $4 to spend, $4 saved ($208 at the end of the year), and $2 to give to a good cause.
But here is where most parents fall short: let your child make mistakes with their budget. We’ve all seen a child want to bust into their savings account to buy a toy they “just have to have!”. So let them dive irresponsibly into their savings account—not their sharing account; that’s off-limits—to teach them how to manage their dopamine-filled cravings and how, in the end, that means they have no more money for anything else.
Here’s the hard part though: parents need to stay firm and not give in once the children spend the money. If a child blows through their savings to buy something and, sure enough, needs something else later that week, it is your job as a parent to say “no.” This way, they will learn that money is valuable, yes, but also finite. Once it’s gone, it’s gone.
Side note: If you want to go the extra mile, you can even teach them lessons about credit by letting them purchase something they’ll need to pay off later. Just be careful. After the toy is purchased, some parents don’t have the heart to follow through with that condition, which does more harm than good for the child.
Teaching your children about money at a young age is one of the best gifts you can give them. As younger adults surrounded in college and personal debt, you want to make sure your child is going to make responsible financial choices as they transition into adulthood. After all, grandma’s birthday checks don’t seem nearly as big at age 25 as they did at age 5.