How and when to teach children how to handle money is a perplexing parenting question. It boils down to three questions: What are your values about money? Should children have their own money? How will you deal with these issues as your children mature?
To begin to address these, start by honestly evaluating your own money management. There are no wrong answers here. It's simply important to acknowledge the values you are already modeling for your children. Consider whether you are training your child in a household of plenty or one of need. Do you faithfully use a detailed budget? How is your overall money management in regard to impulse buying for specific seasons, special occasions, bargains and emotions? Is your goal to live freely, comfortably or debt-free? Is part of your monthly spending a charitable donation or budgeting for meaningful work?
Once you've decided how and why you spend your own money, you can teach your child how to do the same. This brings up the question of an allowance. It's easy to find multiple sources that reject allowances, writing them off as entitlements. However, there are situations in which an allowance works extremely well -- including my own family for the past 20 years.
Evonne Lack presents the hows and whys of an allowance in her blog "Giving kids an allowance: What you need to know" for BabyCenter. "To learn to ride a bike, you need a bike," says Lack. "And to learn to manage money, you need ... a little money. By practicing with their own money, children get to try out concepts -- saving for a rainy day, prioritizing goals and delayed gratification -- that might otherwise seem abstract or irrelevant."
As soon as a child can recognize the value of coins, start a small weekly allowance that will be divided into various savings jars. According to Jeff Eusebio from FamilyMint, the going rate is between 50 cents and 1 dollar per age of the child per week. So, for a 4-year-old, the allowance might be $2 to $4 per week.
Pay the allowance in coin combinations that work for your child's budget. For example, imagine setting up three jars: one jar for fun money that can be used for toys or treats, one long-term savings jar for large items and a donation jar for the charity of your child's choice. Then, a $4 weekly budget might be split by adding 40 cents to the charity jar, $2 to the long-term savings jar and $1.60 to fun money. Later, as your child matures, you can add mores jar -- for gifts, clothing, education, car, etc.
There are many benefits to the simple jar savings system. Children will see they don't need to spend money on a fancy gadget or bank, learn simple math and planning skills (addition, division, budgeting) and recognize what's important to them. Children will also learn important lessons about impulse control, responsibility and not borrowing against future earnings.
Then, take your children to the bank once a month to deposit their long-term savings. When they are old enough to appreciate the value of an interest-bearing account, set up a small fund and let them track their progress on a simple spreadsheet.
Many experts caution against tying allowances to chores. This can undermine the idea of family duty and responsibility. If there are no financial rewards attached, then why will a child want to clean their room or do the dishes?
Rather, it's important to instill in your child that each family member has responsibilities and that everyone in the family contribute to routine chores without awards and bonuses.
However, for extra, age-appropriate duties, consider offering payment. Make a list of extra jobs with the price you're willing to pay for each, and then let your children choose what they'd like to work on. Elementary-age children might sign up to sort clothes and toys to be given to charity before the school year starts, or they could clean the basement once a month. High schoolers might be paid to seal the driveway, clean the gutters or turn the garden. For any job that is accepted, extra money will be available that week. If not, you can hire a professional or do it yourself.
In this way, all members share routine household responsibilities, and good workers with financial savvy can earn extra income to be allocated into their jars as desired.
Encouraging children to be effective money managers will teach valuable life lessons, strengthen mathematical prowess and provide great reward. Enjoy the journey!