We all want our kids to be financially successful, and that means starting early to teach them the value of money—and with hands-on experience. “If we don’t,” says Beth Nowak, founder of Giving Families, “they fall into the same trap as adults, living outside of their means.” The goal is helping children “understand the exchange,” Nowak says. You give money and get something in return. “And it’s finite…and when it’s gone…you have to have a pipeline for more of it.”
The money pipeline
Aside from cash they get on birthdays and holidays, you can encourage them to be entrepreneurial, selling handicrafts at their lemonade stand. Starting at age 3, set up a chores list, noting there are two categories: unpaid and paid chores. Unpaid chores are things that are naturally the child’s responsibility, such as making their bed, cleaning up their toys and room, or taking care of their pet. Paid chores are extra jobs they do that save you time: folding towels, matching socks, putting away silverware, watering plants, setting/clearing the table, etc. Let them think of some, and post a list of extra jobs for extra cash.
For younger children, a dime or quarter per chore works well; for older children, give an allowance for completing a chores list. Teens should get a job and pay for things like car insurance, gas, and eating out—and save for college expenses. It teaches them work ethic, says Nowak, “that there is financial gain to be made from working.”
Saving and spending
Divide their income into three envelopes: 10 percent into charity, 50 percent into savings, and 40 percent for spending. When they have accumulated charity money, let them choose which charity they want to support and experience the joy of giving. For their savings money, let them set a financial goal to purchase a larger-ticket item, guide them to say no to frivolous purchases, and celebrate when they make their goal. Take extra cash and set up a bank account.
Set rules about using spending money, like: The child must pay for something they break or lose or the child helps pay for extracurricular activities, camps, and birthday party gifts. This provides a concrete lesson: We all must make choices between our wants and our ability and desire to pay for them.