I believe there’s never such a thing as “too early” when it comes to educating your child about money — you just have to do it the right way. As adults, we know the financial world can certainly be a complicated one, and when we think about money management, our minds may immediately drift to 401(k)s and mortgages — in-depth topics that are distinctly not for kids! But thankfully, we don’t have to start there to teach our children about money. We just have to open the door to the topic, and keep it simple.
“It’s our chance to teach without necessarily sitting down with a book. They observe and learn from us,” says Jared Feldman, Partner at Anchin Financial and Leader of Anchin Private Client. In fact, teaching them about money when they’re young doesn’t have to be intimidating or complicated at all — it’s actually surprisingly simple. Kids simply need to understand the basics of spending, saving, and giving back. Here’s a look at 4 of the most effective things I’ve done to teach my son about money management, and how you can do the same.
1. I taught my son that money comes from work.
I’ll never forget the night my son asked me for no less than 50 quarters, in a span of about two hours. We were dining at a local restaurant with a few arcade games at the front, and he assumed my purse was a bottomless pit of money. In fact, I’m not sure he even understood he was spending real money — he was just playing games. I made a mental note that this could be a teaching moment, and before we went back the next time, I told him that there would be no quarters given unless he completed chores around the house, and earned a coin for each one. He became laser-focused on completing each chore, and was actually excited to take items to the recycle bin, dust-buster the kitchen floor, gather dirty clothes, place clean silverware in the drawer, and tidy up his toys. Task after task and quarter after quarter, he asked what he could do next. Along the way, I made sure to talk to him about how much fun it can be to earn money, and the importance of working hard towards a goal. My son now has an understanding that money comes from earning, not begging… and I’m also grateful for my tidier house.
Take it a Step Further: Give an Allowance for Chores Completed
To help your child make the connection between money and earning, you may want to put them on a weekly allowance and have them do age-appropriate chores to earn money, says Neale Godfrey, founder of Children’s Financial Network. Godfrey explains there are two types of chores —“Citizen of the House” chores, like going to bed on time, brushing teeth, picking up their toys, and just pitching in, and “Work for Pay” chores, which are more heavy-duty assignments that benefit the entire family like vacuuming, setting and cleaning the table, taking out the trash, and helping to do laundry There are no rules for exactly how much a child should be paid for their chores — your budget will dictate that — but one common option is to pay your child their age per week if they do them all.
2. I avoid making purchases for my son every time we go into a store.
After a few trips to Target where my son was begging for a toy every time we walked through the doors, I noticed that getting a treat had become the default in his mind. To stop the cycle, I decided to rip the band-aid off, and let him know that the only time he could make a purchase would be if he was spending his own money. I asked him to collect his money from birthdays, holidays and chores into a “cash-stash” bag, and every time we go shopping, we discuss what he might want to purchase. Watching his cash stash shrink with every transaction has helped him to be more selective about what he might want — and it’s a great math lesson, too.
Take it a Step Further: Stand Your Ground as the Parent
It’s very difficult for children to understand the difference between wants and needs but “you can make this connection with very young children, and you as the parent should set the parameters for what is acceptable in terms of purchase,” says Godfrey. If in-store tantrums are a common occurrence, parents should implement an earning and spending system so their child gains a better understanding of the finite nature of money, and how to make judicious purchases.
3. I helped my son save with a goal in mind.
Recently, my son decided he wanted to purchase a vintage typewriter (he is an old-soul at heart, and truly loves historical relics), and when I heard this, I knew I could use the opportunity to help him earn and save towards his goal. We started with a simple Google search to find out exactly how much the typewriter might cost, and he quickly realized he didn’t have nearly enough in his cash stash. I suggested that he choose some toys he didn’t play with anymore to sell at a consignment sale at our church, and to my delight, he thought it was a great idea. Suddenly, he was offering up toys he had never considered letting go of before, and he continues to earn and save with his goal in mind.
Take it a Step Further: Implement a Savings System
You can implement a simple financial system for your child by teaching them about the basic categories of spending and saving, Godfrey says. She recommends separating your child’s money into four categories: charity (10%), quick cash (30%), medium-term savings (30%), and long-term savings (30%). Quick cash, as the name implies, is for “fun money,” medium-term savings is for larger purchases that your child would like to make in the next few months, and long term savings get deposited in the bank for vacations, college expenses, or other big goals. “The average child does not understand long-term savings, but you can initiate the habit,” Godfrey says. “Have them look at their account over time, so they can see that their money is growing each time a deposit is made.”
4. I taught my son the importance of giving to others.
My son and I recently went to the store to pick up a toy for a donation drive for our local children’s hospital. At first, he didn’t understand why the other families couldn’t just go to the store and buy their own items, so I offered up what is likely a familiar explanation for many parents, trying to articulate that some families cannot afford the kinds of things he enjoys every day, and how important it is to help when we can. He enthusiastically helped me pick an item at the store — a red wagon — and took pride in assembling it when we got home. It warmed my heart to see him realize that giving back isn’t just important, it’s also fun.
Take it a Step Further: Let Your Child Choose a Charity
The amount or type of donation you give isn’t what’s important — the lesson is that we must use our money and time to do good things and help people. “Whatever the amount – it could be $5 or it could be $500 – begin by allowing the child to pick a charity they would like to give to,” Feldman explains. Letting the child decide on the charity helps him or her to gain a better understanding of what it means to give back. After you donate, talk to your child about what your donation may do to help others, and the impact you’ve made, he says.