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We would like to teach our child money management at a young age. I never had any training and have made some really stupid mistakes. He is only five, but he knows a bit about money, coupons, saving, and tithing. I am thinking $5 a month: $1 for tithing, $1 for saving for college (long term saving), $2 for short term saving and $1 for things he wants. This way he gets used to tithing, saving money, and realizing he has $1 to spend.
I was not thinking of tying this to his jobs, because he is pretty helpful and does his jobs. The other suggestion I read about is to give him credit for each job he does and tying the money into this (same % as above). I understand both points of view, using allowance for money management and to teach them they need do to things for their money. Any suggestions on which way would be best? Thanks.
I commend you. Most people don't think or consider doing this and we have a lot of financially challenged kids in our country. Okay, to your inquiry, I think you are thrusting too much at him all at once. Let's break it down:
I am thinking $5 a month: $1 for tithing - this gives the wrong impression, start young with the understanding that the tithe is 10 percent and help him learn percentages early (note: I would also recommend if you are teaching to tithe you include money gifts as tithe-able income, including gift cards)
And please explain tithing to him completely, make sure he understands that by tithing the Lord will bless his income. He is not paying for salvation. I don't know your religion so I won't preach, just make sure "your" understanding of tithes and offerings are passed on and understood to your child.
$1 for saving for college (long term saving) - too early for the child to understand but you can start doing it for him, wait till he is a bit older and explain what you have been doing and let him know it is time for him to take over OR you can do what my parents did and bought a life insurance policy for me, at a young age it is very cheap and has potential (or at least it did)
$2 for short term saving - I think you have this one and the next one backwards, $1 short term saving and $2 spending. Only because the child needs to learn the purpose of saving money, my parents always told me to save for a rainy day, so I thought when it rained I could spend that money, be clear that you save money for items you can't quiet yet afford and it is their choice to save even more to get a specific thing.
$1 for things he wants - like I said above I think this should be the $2 amount, give him the option of saving more of it
You could also give him $1 to save for gifts for others (birthdays, valentines, Christmas, etc). I personally think the allowance should be weekly and thinking about it you could move it from monthly to weekly later in age. You are starting earlier than I think anyone I know of.
Another idea is a quarter reward for doing chores or $1 for really big tasks. (and don't forget tithe). It's a bit early for your child but I give my kids a $1 for every A on their report card. My youngest only gets +'s on her report card so I give her 50 cents for each because they are numerous and seem too easy to acquire.
It sounds like you are thinking well and doing a good job at an early age. I have 3 kids myself but did not get them until they were in early grade school so I did not have the opportunity to start these lessons younger.
I had to start with this is money. Here you go every week. Then I progressed to this is your chore, now here is your pay for doing the chore. The next step is that is your pay and if you want to buy something pay for it with what you have or do not get it.
I am currently on the step of learning about credit this past Christmas they bought what they wanted for their presents with the money that was given to them from different family members but like any modern teenagers they want more, so at times I will pay for the item for them and then they are now in debt and have to owe me (the bank) back . Someone suggested to me that I should charge interest just like a regular bank [maybe that can be the next step].
When they start to understand the value on money and debt I will then progress to a savings step (since at this time they are unable to keep anything in their piggy banks)
my plan is to offer my kids a choice of helping out with the bills of the house or to place the same amount into a saving account for when they become 19 year old. I think they will all choose the savings account.
As for your tithing; I wish I could have started that at an early stage and it would be a habit by now. Good luck
How do I show a child the value of money? Mom used to sit with me and pay bills with me. Now, everything is all on auto payments. Does anyone have suggestions for how to explain how things work?
Use cash whenever you can. You can also have your children look at your checkbook and credit card statements
Note: this was many years ago...so coins can be dollars...
My mom used an envelope method with me. If I did a task say one hour of basement cleaning, I got 4 quarters.
If I wanted a record, candy, a shirt, and magazine, I would divide the quarters among the envelopes, until I got enough money saved up that I could get what I wanted.
I learned quickly that more chores meant more quarters, which meant I could get to my goal faster.
Also, if I was impatient and used all the quarters for penny candy and ate it immediately, I would be sick and broke :(
If after all my hard work, the item of desire became valueless because something else became of value, I learned to shift my money around to get what I wanted.
It is all different today, but the basic principles of incoming and outgoing remains the same.
You could teach about credit and interest, by letting them borrow and work to pay back with interest. That lesson was painful when my one dollar purchase became 1.50. Made it worth waiting for to get the candy and the eye shadow vs just the eye shadow.
The check book can be a good math exercise to get it to balance.
Hope these help you. I learned how to be frugal from this method!
I am not sure some of the responders (like me) are the best ones to answer your question as so many things that we grew up with or even taught our children just do not relate to today's world.
I used Monopoly money to teach my grandson how to budget. You can also get fake money that looks more like real money at the dollar tree.
The tangible feel and denominations help.
I think really the best thing is to establish a good work ethic and a real tangible memorable lesson about MONEY BEING A FINITE RESOURCE.
The first can be done by personal example, which I assume just from your question you alrady do: IE don't buy a boat but be unable to pay the light bill, don't put everything on credit, don't go on random shopping sprees, don't throw stuff out when it's outdated and buy new ones. Amazing how much kids learn thru example
The second is instilling in them the sense that they must do things to EARN money. Allowance never goes out of style no matter what tech is used; if you prefer you can even give him a paypal allowance. But always tie the allowance to chores, and if they are wheedling to buy something that they don't have enough saved up for (especially if its' something frivolous) DO NOT buy it for them. Make them earn it. Either give special projects (clean out the garage, paint the porch) or encourage them to entrepreneur it (Bake sale, lemonade stand, babysitting, etc) When I was 13 i really wanted a musical instrument - it was only like $250 but my parents simply did not have the $ so I managed to babysit all summer (though that was never my thing) and then I had the $.
the third thing is re tecnology, a big problem with apps and credit and paypal is there is a real sense that tangible cash gives one a real sense of $, that in credit and on the web it just seems nebulous and unreal. Unfortunately I don't see us going back to a cash only world anytime soon. But there are some finance apps that turn the whole thing into a fun accounting game and that can cement the idea in kids minds. Here are some good ones www.nerdwallet.com/
Check with your bank or credit union. They often have a program to set up a bank account and have some information to teach children about money.
I would also include them in your family's finances and bill paying. Show them the accounts online and review them occasionally. I know it was eye-opening for my teen sons to realize that our mortgage was around $1000 a month. You could set a family budget and see if you can get them interested in saving money when shopping. School shopping is coming right up so that might be a good starting subject.
My oldest took a personal finance class in high school and it seemed to put him on the right track for sensible money management. My youngest spends every dollar he gets his hands on so it can depend on personality.
Saving money starts out small; pennies that can be saved to change into nickels, dimes and quarters as progress is made.
If a child gets an allowance or gifted with money, let them save a part of it and spend a part of it...this teaches that all the money doesn't get spent, but a portion; set a savings amount.
Open a savings account for your child and he/she can see their money growing and earning interest. This may be the incentive that helps save money and actually own their account. The child can add the interest amount to the total in the savings book and feel the importance on a grand scale to being a responsible saver of money.
Discussing the value of a dollar by buying items when they are on sale and using coupons helps a child spend wisely and save too. Buying online with free shipping teaches cost cutting ideas. Yard sales and thrift stores can play a part in getting the most for their dollar. It shows a child to look at lots of ways of buying their want/need item w/o buying full price.
Going grocery shopping with you is a great way a child can look at items on a shelf and find a lower priced item among the other brands, or to calculate the cost of each item and let them see how easy it is to spend money on food they eat daily and the cost to feed a family for a week. That's a real eye opener and you are making a fun game for a child while they are learning at the store being your helper.
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The best lessons learned in life come naturally. Try to include children in daily activities not only to be your helpers but also to teach them free lessons about how to manage their lives and their money more efficiently.
A trip to the bank can be the most beneficial "field trip" you can take with your children. Open a custodial bank account for each child. Often banks offer childrens' programs that host parties or offer rewards for deposits. If they don't, create your own reword system.
Talk to your child about how the bank account works and why it's important to maintain a healthy account. The earlier you start to impart the wisdom of saving and spending within reason, the easier it will be for your children to manage their money later. After holidays, require that children put a percentage of any money received into the bank. It can be as little as 10%, but it will impart the wisdom of saving.
While grocery shopping isn't always a favorite outing, it can be a valuable learning experience for children. Keep them busy with a task as you shop and your trip will be much easier.
Older children can bring a calculator and keep tabs on the total of the trip. By realizing how quickly prices add up and by seeing how much the snack she's begging for costs, your daughter may ask for less in future trips (or at least finish the entire bag before begging for something new.)
Smaller children can help find items on the list. I created a picture list for my son when he was small. We put pictures of items we bought weekly on heavyweight paper and laminated it. He had his own picture shopping list. Coupons become a matching game; match the coupon to the product. Now is a great time to talk about the differences between store brands and national brands.
Another great place to teach the value of a dollar is the store named after the item. Dollar stores (those that price every item in the store at $1) teach a basic principle: I have three dollars, so I can get three items. Prioritizing and advanced thinking soon follow.
I know many adults who need to learn the same lesson we try to teach our children: for every new item bought an old item must be discarded.
Teach children to organize and keep their belongings in check. "If I buy a new doll, I need to get rid of one. I don't want to get rid of any of my dolls. Then, I don't need the new one." Hopefully, this is what will run through young minds.
Let kids take part in discarding their items. Have them help while dropping off items at the Goodwill store, and take them inside to look around. Talk about the purpose of the store and the value of reusing items.
Similarly, children enjoy selling their items at yard sales and even online. By putting them in charge of their profits, they are more willing to part with old toys that they have outgrown in favor of the funds to buy new ones they will enjoy. Based on the replacement principle, my son enjoys helping me to list in online auctions the toys that he's outgrown. We usually set a goal; for instance, he can use his earned money to buy a street hockey stick.
I try every day to think about the lessons I want to teach my son so that he will grow into a responsible adult. Even though I'd much rather get in and out of the grocery store as quickly as possible, it's hard to pass up the free education it offers.
About The Author: Kelly Ann Butterbaugh is a freelance writer who regularly contributes to a variety of magazines and has written a history book for middle readers.