For most of my life I knew very little about how to handle money. My examples growing up were usually of living paycheck to paycheck, and, when finally on my own I followed suit for a long time. The only advice I ever received was from my grandmother who told me regularly to “save, save, save,” but never told me how to get to a point where I could actually do that.

Unfortunately, my story is all too common. Today’s children are tomorrow’s business owners and many of them will go through years of financial struggles because they were never taught by their parents how to properly handle money. I firmly believe that teaching our children about money from the moment they are able to count (around 2 years old), is vital to their future happiness and survival.

The Boxes Method
When you’re little one can count to 10, she can begin to understand money. Remember, kids learn by observation and repetition. Give her a small allowance in increments that can be divided. I recommend starting with three pennies each day. I know, pennies sound small, but that is about all that will hold their attention span at a young age. Provide her with three small boxes and label them: spend, save and give. Show her each day that she should put a penny in each.

The “spend” box is, of course, the money that she gets to spend. Buy some stickers and new barrettes or, for your little man, a packet of baseball cards or bubblegum. Give him the opportunity to buy a piece of gum immediately, or wait until tomorrow so he will have two cents to buy a baseball card. What seems like an insignificant process will help him to understand how spending works.

The purpose of the “save” box is obvious as well. Give him ideas of things he can save for and buy at the store within the next month, such as a matchbox car. Tell him how many pennies it will take and remind him how close he is to buying it each day.

Avoid the temptation to help him along by adding extra funds. At such a young age, he may get the idea that mommy and daddy will always help him get what he wants. You want him to learn personal responsibility, not dependence on you.

Using the “give” box depends on your preferences. I am a firm believer in giving to charity, whether it be offering at church or donating to the local shelter, so it’s part of my teaching strategy. I believe that giving will eventually produce a return.

For example, the Rockefellers are an extremely well-known and wealthy family. What most don’t realize is that from John D. Rockefeller on down, the family has always been predominately givers. John Rockefeller gave over half of his $1 billion fortune during his lifetime, and the tradition continues through the generations.

Get Them Involved
As your child gets older, expand the financial lessons (and the amount of allowance) accordingly. Make her aware of your family’s position on finances - explain where your money goes.

Too many parents feel that it’s none of their child’s business how their money is spent, but that attitude is all wrong. You child learns by watching you. Your attitude about finances will become hers as she gets older. Openness will only help her to learn more and be more responsible with her own money down the road.

Let your child have input on what the family saves for, such as a family vacation, summer camp, or new family bikes. Map out how much you will need to set aside as a family each month in order to reach your goal, and have the kids contribute some of their allowance savings (such as $5 a month). Show them how even a small amount helps you to get there that much quicker.

Teach Debt Early
It’s also important to start teaching your child the shackles of debt. When you child begins to ask for a luxury item, such as an X-Box, agree to purchase that item with the understanding that your child will pay you back out of a portion of his allowance (Christmas is an exception, of course).

You may even consider adding a small percentage of interest, say 2%. Seem harsh? Well, it might be to some, but it’s highly effective. He will soon realize that it’s better to save up for something big and be patient than to spend money that you don’t even have yet. This will also begin to teach him the difference between needs and desires.

But what if your child is already a teenager and you are starting to witness the repercussions of not teaching her earlier about finances? Don’t worry, it’s not too late. As long as she is still under your roof, you still have ample opportunity to teach her how to handle money correctly – before she gets in trouble out on her own.

Tomorrow I will cover how to reach a teenager about finances, even when it seems impossible.

Related Reading:
• FamilyEducation.com: 15 Ways to Teach Kids About Money

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6 Responses to “Teaching Your Child About Money”

1. » 84th Carnival of Personal Finance  on Blueprint for Financial Prosperity says:
   

   […] Michelle Cramer presents Teaching Your Child About Money posted at The Small Business Buzz. […]

   Posted January 22nd, 2007 @ 8:23 am
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2. Carnival of Personal Finance » Carnival of Personal Finance #84 says:
   

   […] Michelle Cramer presents Teaching Your Child About Money posted at The Small Business Buzz. […]

   Posted January 22nd, 2007 @ 9:54 am
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3. Working at Home on the Internet says:
   

   […] Christopher J. Brunner presents Teaching Your Child About Money posted at The Small Business Buzz, saying, “My submission is about the importance of teaching the world’s future business leaders about money at a young age, and suggestions on how to do so. Thank you for considering my submission for inclusion in this week’s edition of the Working at Home Blog Carnival.” […]

   Posted January 26th, 2007 @ 6:38 am
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4. Insurance » Carnival Monday! says:
   

   […] Carnival Monday! This week’s Carnival of Personal Finance is hosted by Jim at Blueprint for Financial Prosperity. With over 75 entries, in 3 categories, there’s sure to be something you’ll find useful (and/or fun). Our kids are pretty much grown now (okay, one’s still a teenager, but you get the idea). Still, we (they) might have benefitted from GreatFX’s post on teaching kids about money. […]

   Posted February 3rd, 2007 @ 9:28 pm
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5. Fetch Blogs » Blog Archive » Carnival Monday! says:
   

   […] Carnival Monday! Posted on January 22nd, 2007 in Fetch Blogs by The_Prof (H G Stern, LUTCF) This week’s Carnival of Personal Finance is hosted by Jim at Blueprint for Financial Prosperity. With over 75 entries, in 3 categories, there’s sure to be something you’ll find useful (and/or fun). Our kids are pretty much grown now (okay, one’s still a teenager, but you get the idea). Still, we (they) might have benefitted from GreatFX’s post on teaching kids about money. David Maister hosts this week’s Carnival of the Capitalists. There are more than 50 entries, broken down into 6 categories. Each one has helpful context, as well. Nina, blogging at Queercents, poses an ethical question about investing in companies which engage in activities we find immoral. […]

   Posted February 6th, 2007 @ 2:05 pm
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6. 5 on the 5th: worth a read - February 07 at Start a Side Business says:
   

   […] Teaching Your Child About Money. […]

   Posted February 7th, 2007 @ 1:55 am
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