Remember when you received your first paycheck, only to realize that just a fraction of it was for spending on yourself? The sooner kiddos realize that of the $20 Grandma sent for their birthday only a fraction of it is for spending, the easier managing their money as an adult will be.
Teaching kiddos to conquer the coin is important. Personal finance is rarely, if ever, taught in school. Learning to make money work for you doesn’t happen magically. While money management is complex, there are simple things you can do right now to teach your little one budgeting.
Of course, the age at which you introduce your children budgeting is totally up to your discretion. My daughter is six. We started talking about money in part because this past year she opened her own savings account.
Her grandmother took her to the bank and helped her set up a children’s account. (As an aside, I will talk about savings accounts for kiddos in a different post.) In order to fill the savings account she and her grandmother started, I sat down with my daughter to have a talk about money.
Allowance, Christmas money, birthday money, financial rewards. As soon as your kiddo starts acquiring cash, it’s probably a good segue into a conversation about money. Having a discussion about money should include understanding where money comes from, what are ways they could either save, spend or invest their money, and discussing money goals.
One easy way to accomplish this is by sitting with your kiddo and separating their money into three jars. I have heard and seen many variations on this but jars are most often labeled: SPENDING, SAVINGS, GIVING.
Like all of us, when my daughter realized that she would not be able to spend all the money in front of her, it was an affront. So, we decided just to evenly divide it into three parts. Easy math. (If you would like to assign a percentage to each jar, that would be ok too.)
I think it is important to make children realize that when they spend their money it is gone for good, and they always have the option of saving their spending money as well. Although I will keep on reminding my daughter of this, her spending money is usually spent quickly on a new toy or as ice cream money.
While the shock of losing money was difficult for my girl, the idea of going to the bank to deposit the SAVINGS jar into her savings account excited her. When depositing the money, I made an effort to place her in the role of depositor. After all, it’s her money. We filled out the deposit slip together. With me at her back, she turned in her money to the teller and received a receipt.
When establishing a SAVINGS jar, you also want to have a discussion about your money goals. My daughter is saving up to buy a longhorn (YES! A REAL FOUR-LEGGED BULL WITH LONG HORNS!!!) She saw a for sale ad for one, and since then has been adamant about her plans. It’s only $9,000. Meanwhile, I will continue to try and steer (no pun intended) her plans towards a UT Longhorn degree instead of a longhorn bull.
Putting money in the GIVING jar surprised me. I intended to teach charity and giving donations to those who need it. My daughter loves animals, and I was planning to guide her towards donating the GIVING jar towards our local animal shelter. I explained the concept that we should always save some money to give to others. Before I could even finish, she interjected excitedly about buying something for her Tio’s (her uncle’s) birthday.
That wasn’t the direction I wanted to go, but I remembered when I was a kid how I often wanted to buy my family members and people I loved gifts, but didn’t have the money. I also remembered as I got older and was able to buy gifts, how satisfied I felt. I thought the idea of making sure you give a part of your money away was still coming across, so I let her use that money to buy something for her tio.
This is money management 101. As your little ones get older, things will get more complicated, but never be afraid to expose your children to tough money lessons. Keep in mind your money struggles, and try and make your little one mindful of managing their money.