Money management can be challenging, even for many adults. That’s why it’s important to instill financial literacy early in a child’s development. Here are some strategies for introducing your kids to wise money habits.
Chores = earning opportunities. Assign a monetary value to each required weekly household chore to make up a baseline allowance. Subtract the appropriate amount if any chore is not completed on time. Certain tasks for older children, such as washing the car, can be optional “overtime.” The notion that money is earned by labor expended reinforces the value of each dollar.
Demonstrate compounding interest. Determine a rate of return for any money your child saves to illustrate how interest accumulates for money invested. Likewise, if your child borrows money from you, issue a rate of interest for the loan. At the end of the loan term, review how much was spent in interest over the amount originally borrowed. Understanding early on how interest works can help your children make informed financial decisions throughout their lifetimes.
Create a visual representation. Use a clear piggy bank or change jar to allow young children to physically observe their money accumulating. For older kids, set up a simple online budgeting document that logs their saving and spending, encouraging the habit of checking on their “accounts” regularly. Common money missteps can be avoided simply by frequent monitoring.