Even in these challenging times when we are so distracted, we need to keep parenting. And it's more important than ever to ensure we are the parents we want to be. Why? Because if we don't set our kids up for success, we set them up for failure.
It's not easy to teach money lessons you may not have learned. And because of this, you may unknowingly support the "I want, I want" syndrome. You dole out $20 here and $20 there because, "Hey, they are just kids." You are actually fostering entitlement.
There is nothing that we use more constantly than money. Even if you are not spending it, your mortgage or credit card interest rates are ticking, and your electric bill is adding up. If you are not making money decisions based on knowledge, you're making them based on ignorance. Why would we pass this legacy on to our kids?
Money Basics for Young Children: Ages 3 – 7
Work-for-Pay
This concept may raise a few eyebrows. I think young children should go on the family payroll. Allowance should be in the form of payment for work for specific age-appropriate household chores. I start really young for two reasons:
1) Research shows that children experience the greatest brain growth between birth and age five. They learn abstract and hard-to-grasp languages. So, if our children learn the most at a young age and form their patterns and habits, why wouldn't we start teaching them this important life skill when they are young?
2) At this young age, kids think we are really smart, and they want to do everything we do. By the time they are teens, we get "really stupid," and any lesson may seem like more "blah, blah, blah."
There are two types of chores within a household:
Citizen-of-the-Household Chores – brushing their teeth, going to bed on time, and returning toys to the toy box, for example, are part of good behavior. You can make a chart, write down each chore, and put a sticker for each accomplishment.
Work-for-Pay Chores – where they receive money. These include chores such as sorting out laundry and recyclables and setting the table (except for the knives). You model the chores and help them until they can do them on their own.
Write down each chore on a chore chart. They should do about three to four chores a few days a week. Payday, with real coins, should be a consistent ritual. It's important that they make the connection between real and digital money. Pay them their age each week, so a three-year-old, for example, gets three dollars a week.
Budget
Budgeting is another habit to learn. Help your kids to count out their money into four clear plastic jars or envelopes. Here is how it gets divided:
Charity Jar—10%: You are teaching them the value of giving to others. You pick the charity with them. It could be as simple as putting coins in the jar to support the local animal shelter.
Quick Cash—30%: This is for instant gratification. They worked hard and should be able to make some impulse purchases. But when the money is gone, it's gone. No more nagging at the grocery store; they need to use their Quick Cash.
Medium-Term Savings—30%: They will set a monthly goal to save up for something larger, like a sticker book. This way, they will learn the benefits of savings and avoid instant gratification.
Long-Term Savings—30%: If possible, open a real bank account in a physical bank and explain how a bank works. As they grow older, you can go all digital. But for now, you don't want them to think that digital money is just another video game.
The End of the Beginning
This is only the beginning of establishing a healthy, lifelong relationship with money. We want our kids to understand what money can and can't do because, as parents, we never want our offspring to confuse Net Worth with Self-Worth.
Neale Godfrey is a speaker and author of 28 books that empower children and parents to have healthy relationships with money. She is also the New York Times #1 Best-Selling Author of Money Doesn't Grow on Trees: A Parent's Guide to Raising Financially Responsible Children.
"If you are not making money decisions based on knowledge, you're making them based on ignorance."