Every child needs to learn to manage money responsibly. Just like other areas of our health, such as nutrition and exercise, money management can become a part of your child's lifestyle. It is also a good way for older kids to build independence and feel control over their decisions.
The basics: save, spend, share
Teach your kids to break money into 3 categories:
Save. Money in this category is set aside for a time or goal that you agree on. There can be different saving goals. The goal can be shorter-term, such as saving up for an item for themselves or a gift for someone else. The goal can be longer-term, such as a college fund. The goal can be to get them into the habit of saving for the unexpected, such as replacing lost headphones or repairing a damaged cell phone.
Spend. Money in this category is for personal use. It might be tempting to control this part of your children's money, but it is important to let them learn how to manage money on their own. They will learn that with limited funds, they will need to make choices. For example, do they buy the sweater they love or spend money on ice cream with friends? Do they have enough money to buy a new game and a birthday present for a family member or friend? They will need to decide what's important to them. This will help create the foundation for better spending decisions when they are older and the decisions are more important. For older children, establish ground rules, like what size purchase requires your approval before buying.
Share. Money in this category is set aside to spend on others. Teaching children that they are part of a bigger community and how they can make a positive effect is a powerful lesson. The "share" component of their money is for donating to a charity of their choice. Give school-aged children the opportunity to research a cause or organization of interest to them, and include them in the process. If the charity is local, bring a check to it in person. If the donation needs to be mailed, have your child write a note to send with the donation. Or show them how to donate in someone's honor online.
Make a plan together
Decide together how you will track your children's money. Think about ways that fit each child's learning style. Here are some ideas.
Keep money in separate containers, such as envelopes or jars. Label each container:
Save, Spend, Share. Your child may enjoy personalizing and decorating the containers.
Keep track of each child's saving, spending, and sharing by using a notebook or spreadsheet. Each time a deposit or withdrawal is made, review the balances. Parents would be in charge of storing the money.
Create a sticker chart. Instead of giving younger children cash, make a chart and mark the dollars earned with stickers.
Once you have decided how you will track their money, decide what portion goes toward each category. Feel free to adjust this as needed.
As your children get older, you might find it useful for them to have a debit card. There are a number of cards designed specifically for children. A few even have allowance apps linked to them. These apps help with tracking chores and easily distributing payments. You can also set up a credit card with your family bank with a low spending limit to help your teen learn to manage their spending habits.
Don't be afraid to model and discuss this mindset with your family. Give examples: "Instead of buying coffee on my way to work every day, I am going to make it at home. That saves $10 each week and $40 a month. I am going to donate some of that money to a local shelter and save the rest for our family vacation fund."
Chores and allowances
Should you give your children an allowance? You'll need to decide what works for your family. Chores may be one way children can earn an allowance.
If your children get an allowance, make the earnings matter. For example, assign areas for which they are responsible, such as buying some of their clothes, paying for activities or food when they go out with friends, or just saving up for that next computer game or app download.
Allowances and being responsible for their own spending can be beneficial in a number of ways.
These eliminate the "Can I get it?" question each time you enter a store.
These remove the cycle of instant gratification, making children think about whether something is important to them or if they just want something because it is in front of them.
These teach school-aged children and teens to prioritize spending. They can quickly notice how small spending adds up or just how much extra a specific brand name can add to a price tag.
Assigning chores provides a sense of accomplishment and meaning to the money earned. Here are some examples of chores that kids can take on starting during their elementary school years.
7 to 8 years old: Make their bed, bring in the mail, brush their teeth and hair, vacuum, set or clear the table, or help fold and sort laundry.
9 to 11 years old: Feed the pets, take out the trash, help bring in groceries, prepare simple meals with supervision, be responsible for their homework, and water the plants.
12 to 13 years old: Look after personal belongings, including charging electronics; dust; clean bathrooms; vacuum; do dishes or empty the dishwasher; and rake the yard.
14 to 18 years old: Do yard work, babysit, prepare some meals, walk the dogs, and take on bigger cleaning projects. Older children with their driver's license can help run errands.
Older children and larger purchases
If your child has their heart set on a bigger purchase that is reasonable for your family, set a goal and work with them. Give them opportunities to do extra projects around the house or to find a part-time job. If they are motivated and working hard, consider matching their earnings if that works for your budget.
Reinforcement is key
Remember that money management has a learning curve. Expect some mistakes along the way. As with developing any skill, positive reinforcement is beneficial. Reward your children for their hard work, when they meet their money goals, and when they make smart spending decisions.