Teaching Young Children to Manage Money

Teaching Young Children to Manage Money

It’s never too early to begin teaching your children how to manage money responsibly. After all, it is a skill some still struggle to master even as adults. There are some fun things you can do with your preschool-age children to help them become money smart.

One of the obvious things you can do is to give your child an allowance. There are a lot of different opinions about when and how to do this. I think a child is ready for an allowance as soon as she shows an interest in money and how it works. For this reason, my daughter started getting her allowance at about age 3 1/2. I give her one dollar for each year of her life, so she began by getting $3 per week. When she gets her allowance, one-third of it goes into a spending jar (which can be spent immediately), one-third of it goes into a short-term savings jar (to be saved for larger purchases), and one-third of it goes into a long-term savings jar (to be put in the bank). This has worked well and my daughter has been able to see her money add up and plan some of her own purchases. I recently heard this system explained with a giving jar (to be given to charity or other gifts) instead of a long-term savings jar.

Another way to help your preschooler learn about money is to let her earn some extra money, perhaps even above and beyond any allowance. Even young children can do this on occassion by performing extra chores or helping to pet sit for a neighbor who is gone, for example. You could even devise a list of extra chores and what each will pay. This money can then be added to your child’s savings jar.

When your child has some money in her possession, the next logical step is to set up a simple budget/savings plan. If you use the savings jar, you can help your child make a list of the things she wants to purchase with her money. Then help her prioritize this list so she can see what she is saving for. You can even cut out a picture of the item and tape it to the savings jar as a visual reminder. As your child sees more things she wants, help her add them to her wish list and reprioritize the list. With young children it is probably a good idea to aim for purchases that can be made after saving for only 3 to 6 weeks, so as not to lose their interest.