It's never too early to start teaching your kids about money. We often think about the basics of money management as something that only applies to adults, but the earlier you can start your children on their financial journey, the better equipped they will be for the future. After all, financial literacy is a crucial life skill that will serve them well in all areas of their lives.
Why Teach Your Kids About Money?
As a parent, I've always believed that financial literacy is a key component of a well-rounded education. It's not just about numbers and budgets; it's about instilling in our children the values of responsibility, planning, and mindful spending. I've found that teaching my kids about money has not only helped them develop valuable life skills but has also strengthened our family bonds as we work together on financial goals.
My Personal Journey
My journey into teaching my children about money began a few years ago when I was admittedly against paying them for basic chores and responsibilities. In our instant-gratification and materialistic world, I had the misconception that allowing them to earn money for simple tasks might spoil them. However, I realized that this approach was actually doing them a disservice.
Children need to learn how to manage money at a young age to become responsible adults. So, I decided to create a system that would make learning about money as much like the real world as possible. It's a system that has worked beautifully for our family and continues to evolve as our kids grow older.
A Kid-Friendly Budget System: The "3 Jar" Approach
The "3 Jar" system is a simple and effective way to introduce budgeting to children. The system involves using three separate jars, each representing a different fund: spending, saving, and giving.
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The Saving Jar: This jar helps children learn the importance of saving for their future goals. It's crucial to make the goal specific, whether it's saving for a new video game, a special toy, or something else they've been wanting. This helps them visualize their progress and build a sense of accomplishment as they save. Encourage your children to regularly set aside a specific percentage of their money into this jar, such as 30% or even just a portion for every dollar they earn.
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The Spending Jar: This jar is all about those things that kids want to buy right now. It's a great way to allow them to experience the joy of spending while teaching them to be mindful of their choices. This jar can be used for small items like candy bars or trinkets at the grocery store, or even for bigger purchases like clothing or school supplies, depending on your child's needs.
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The Giving Jar: This jar promotes compassion and the understanding of giving back to others. Help your child choose a cause that is important to them, whether it's a charity that supports animals, a local family in need, or a friend who needs a gift. It's not just about the money; it's about teaching them to appreciate the impact their generosity can have on others.
Making The System Work: A Weekly Chore Schedule
To make the "3 Jar" system work for your family, you'll need to set up a consistent and age-appropriate chore schedule. I've found that a weekly schedule works best, and it helps ensure that the chores are being completed and that the kids are getting a regular allowance. I've included a sample chore list from the PDF documents I studied, but you can personalize it for your family's specific needs.
Here's an example of a sample chore list for ages 8-14:
- Laundry
- Empty Dishwasher
- Clean off Table
- Clean up Kitchen/Dishes
- Sweep
- Clean Bedroom, Bathroom, Toy Closet
- Garden and Landscape Assistance
- Trash
- Assist or Make a Meal
- Practice Musical Instrument
You can adapt this list to match your child's abilities and interests. The key is to make the chores age-appropriate and manageable. For younger children, you might want to start with just a few simple tasks and gradually increase their responsibilities as they grow older.
Setting a Salary: Taking It Beyond Chores
While it's essential to teach children about work and responsibility, I've found that it's equally important to discuss the concept of a "salary." By assigning a set amount of money for their weekly chores, I've been able to help my children understand the connection between work and financial compensation.
Here's how I determine my children's weekly "salaries" based on their ages and responsibilities:
- Age 8-10: $30 per week
- Age 11-13: $40 per week
- Age 14 and up: $50 per week
The salary amount will need to be adjusted as their needs and responsibilities increase. It's important to be open and communicate with your children about how their salary is calculated.
Financial Management: Teaching Budgeting Skills
Once your children are comfortable with the "3 Jar" system and have a regular allowance, it's time to move on to the next stage: teaching them how to budget their money effectively. I've found that the "50/30/20" budget rule is a good starting point.
This rule suggests that your children should allocate their money as follows:
- 50% Needs: This category covers essential expenses like groceries, housing, transportation, insurance, and minimum loan payments.
- 30% Wants: This category covers those things that they enjoy, such as entertainment, dining out, and leisure activities.
- 20% Savings & Debt Paydown: This category covers their savings goals and any debt they may have, whether it's a small loan from you or a purchase they made on credit.
Remember that the "50/30/20" rule is just a guideline. As your children become more financially savvy, they may choose to adjust the percentages based on their individual needs and goals. The important thing is that they learn how to plan their finances in a way that works for them.
Financial Literacy at Different Ages
It's essential to adjust your approach to teaching your kids about money based on their age and maturity. Here's how you can implement the "3 Jar" system and the "50/30/20" rule according to different age groups:
- Ages 3-5: Introduce the "3 Jar" system using physical jars and real dollar bills. Focus on teaching them the value of saving, spending, and giving, but let them spend most of their money at this age. This is about developing the concept of money management, not strict budgeting.
- Ages 6-11: Continue using the "3 Jar" system and introduce the "50/30/20" rule as a guideline. Help them understand the importance of saving for specific goals and encourage them to set aside a larger percentage for savings.
- Ages 12-14: Start moving away from physical jars and explore budgeting apps or online tools. This is a great time to teach them about the difference between needs and wants and to help them develop a more sophisticated understanding of budgeting.
- Ages 15-18: Begin talking about more complex financial concepts, such as credit, debt, investment, and insurance. Help them create a budget that reflects their own expenses, like cell phone payments or car insurance.
Moving Forward: Financial Independence
As your children grow older, the "3 Jar" system will naturally evolve. You can start to introduce them to more complex financial concepts, like opening their first bank account, investing in stocks, and understanding credit cards. The key is to keep them involved in the process and to answer their questions with patience and honesty.
Remember, teaching your kids about money is an ongoing journey. It's not a one-time event. Be patient and be willing to adapt your approach as they grow older and their financial needs change. The goal is to equip them with the knowledge and skills they need to make sound financial decisions throughout their lives.
Frequently Asked Questions
1. What if my child is a spender?
It's natural for some children to be more inclined to spend than save. Don't discourage their spending altogether. Allow them to learn from their mistakes. Let them see how quickly their money can disappear if they aren't careful, and help them to understand the value of saving.
2. How do I handle a situation where my child wants to spend their "savings" jar money?
Have a conversation with your child about why they want to spend their savings and explore alternatives. Help them understand the long-term benefits of saving. If their desire to spend is based on a particular goal, work with them to create a plan to save for that goal.
3. How do I teach my kids about credit cards?
It's never too early to start having conversations about credit cards, even if you choose to wait to give them a debit card until they are older. Explain the pros and cons of using credit cards and emphasize the importance of responsible credit card use.
4. How do I keep track of my child's money?
Consider using a budgeting app or spreadsheet to track your child's income and expenses. This will help you keep track of their progress and identify areas where they may be spending too much. It can also be a valuable learning tool to help them develop their budgeting skills.
5. What are some resources for teaching kids about money?
There are many valuable books and online resources available for teaching kids about money. Here are a few suggestions:
- Teach Your Child to Fish by Holly D. Reid
- Make Your Kid a Money Genius by Beth Kobliner
- Money Monster or Money Master? by Norma LaFonte
- Moneybags: A Guide to Teach Your Kids About Money by Wendy Gillespie
Remember, learning about money is a lifelong journey. The earlier you start, the better! By teaching your children about money management and budgeting, you're equipping them with essential skills that will help them make sound financial decisions for years to come.
