Teach Your Child the Value of Money

Two jars marked save and spend
••• Andrew TB Tan

It's important to teach children to budget and save, but how can you convince your child to budget their money for a rainy day when they can't plan beyond their next nap?

It's not easy, but with discipline 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 money comes from? It's not an unreasonable assumption for a young child to make if they have never had to work or 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. Loading the dishwasher might be worth 75 cents. Mowing the lawn might be worth $2, etc.

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 PlayStation 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.

This lesson was popularized by the Muppet, Elmo, on the popular children's television show Sesame Street. The episode features Elmo finding a toy he wants and working to earn money to buy it. Along the way, he makes decisions to avoid impulse purchases and to use some of the money he has saved to help a friend.