It's important to teach your children to budget and save their money, but how can you convince your child to budget their money for a rainy day when they can't plan beyond their next nap?
Younger children will not easily understand the differences between depositing, withdrawing and saving, but with the proper visual aids, patience and planning, it can be done.
The Relationship Between Work and Money
Do your children think money comes from an ATM? Or do you know someone with children who think that's where their money comes from? It's not an unreasonable assumption for a young child to make if they have not witnessed firsthand the work their parents must do to earn the money they get from the ATM.
To motivate a child to save, they need to understand that the money they receive is directly tied to the work they do. One way to accomplish this is to create a chart that lists chores plus the pay rate for each age-appropriate chore. Sweeping the floor might be worth 50 cents and they could load the dishwasher for 75 cents. More physical chores, such as mowing the lawn, might be worth $2.
Paying for chores is somewhat controversial. Some families believe children should be required to do chores for no additional compensation so they can contribute to their overall household. If this is your philosophy, then you might consider requiring your child to do a baseline level of chores — such as putting away their toys, setting the table, wiping down the table after dinner, etc. — as part of their contribution to the household.
Anything the child does that goes above and beyond their normal household duties might then be a means of earning money.
The Three Money Jars
When your child asks for a toy, let them know that they must buy the toy with their own hard-earned money. Your child soon will figure out that the $1.50 they've earned this week means they'll have to do more work to buy a toy that costs $12.
This is the moment when the "three jars" lesson comes into play. Set up three jars for your child: one for saving money, one for spending money and one for sharing. Each time your child gets paid, help them budget their money between the three jars.
Some of it goes into the jar for immediate, short-term spending: a candy bar or an ice-cream cone, perhaps. Some of the money goes to the jar for "savings." Your child should choose their savings goal. Perhaps they want a new video game or a cell phone. Each time they get paid, they can watch their balance grow. The third jar should be for "sharing."
Your child should choose a cause and contribute money. Perhaps your child might elect to put that money in the collection basket at church, give it to an animal shelter, donate to a group that helps disabled veterans, or preserve an acre of rainforest.
Money Is About Lifelong Learning
Children should be exposed to handling money from an early age. There is no guarantee that a child, given the best financial lessons in life, will go on to use those lessons.
However, the parents should know and feel that they gave their children all the knowledge necessary to successfully handle their own finances. In time, as the child ages, the lessons will begin to sink in and (hopefully) the adult will begin to use the financial knowledge they were given.