DEAR IDA: My child acts like every trip to the store is Christmas morning, and I’m trying to teach the difference between a need and a want without turning into the meanest mama on earth. What’s the best way to start those money lessons early while still keeping the peace at home ? – Brownlee
Dear Brownlee – I think that teaching children at an early age the importance of managing money is crucial for a successful launch into adulthood. When my child was 8 years old, I heard about a technique for teaching children to become financially responsible and independent and I’ve recommended the technique to any parent willing to listen. The concept is simple. Give your child a set monthly amount of money for each year of your child’s age. Do not tie the money to payment for chores. Let your child know that they will be responsible for buying the “extras” that you would normally buy for them, such as a new toy or a snack.
Our child was 8 at the time and my husband and I settled on $10/year of age so our son started out receiving $80/month. I know to some people that may seem like a lot of money but when you consider how much money you spend each month on incidentals, the amount really adds up. This technique will likely save you money because you teach your child to be responsible for making decisions on what is worth buying since they are paying for it themselves.
We set up a bank account for our son and made the monthly payments directly into his account. Since he was so young, my husband and I were also on the account as custodians so we could log into the account periodically to ensure that it did not become overdrawn. Just like any other bank account, our son was issued a debit card and a checkbook. We taught him how to balance his register each month and to look for discrepancies.
It is very important that you stick to your guns and don’t give your child additional money throughout the month even if they burn through their allotment in the first week of the month, as this will help them learn the importance of budgeting and saving for big ticket items.
While our son’s monthly allotment was not associated with doing chores, we did occasionally use deductions from the allotment as penalties for breaking rules. By doing so, our son learned the important lesson that there are financial consequences associated with making bad decisions.
If you don’t think your child is ready to have their own bank account or are responsible enough to manage their money independently, try taking your child shopping with you. Tell them how much money you have budgeted for the day. Give them your shopping list and let them do the shopping for you. Remind them that they need to withhold enough money to pay the taxes on your purchases. Let them know that they can keep any change that remains but they must purchase all of the items on the list. First, this will teach them just how expensive things are these days but will also teach them to price shop between brands and generics. Use a calculator and let them know how much money remains after each item goes into the shopping cart. At checkout, give your child cash to pay the cashier and receive any change.
Even very young children can start learning about money through counting games, or pretend shopping. Reward them for completing tasks like picking up their toys. You can teach them about generosity by giving them a dollar to put in the collection plate at church. Give your child a piggy bank and count the money with them each month. This will give you the opportunity to teach them the difference between the coins and denominations of the bills. You can also use the piggy bank as an opportunity to teach them about patience and earning interest.
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