The Seeds for Financial Success are Planted Early
We all know that money cannot buy happiness. Nor is it the root of all evil. Learning how to manage money, however, is important to ensuring a sense of security and self-worth. No matter whether your child wants to be a stockbroker or a school teacher, learning how to manage money gives them the key to financial success. Success that comes from knowing she has the skills and the knowledge necessary to take care of herself.
When I was growing up, my parents assumed I would marry and my husband would be in charge of our finances. Consequently, I found myself lacking in financial savvy. That was until I divorced and was forced to learn the ways of money for myself. Through necessity, I learned some very valuable lessons. Lessons that I began passing onto my child at an early age.
When my daughter was in kindergarten, there was a battery-operated ballerina doll that was all the rage. All the girls in her class had this particular doll. They spoke of it with a reverence that suggested it perhaps possessed mystical qualities. This hype, coupled with the fact that my daughter was odd man out, made her quiver with desire. She had to have that doll.
To me, her intense desire was a glimpse of things to come. It was the first time we had encountered the materialistic side of peer pressure. It was also the perfect opportunity to introduce her to the concept of money. I waited until my daughter asked for the doll again. I told her that I understood really wanting to have something, and I was going to show her how to get it.
First, I made sure that she understood the concept of money. Once I was convinced she did, I introduced her to the idea of an allowance. In exchange for her helping load the dishwasher after dinner and picking up her toys before bedtime, I would give her five dollars a week allowance. Doing a little quick math she responded with, “Wow. I can have my doll in three weeks!” I explained to her that it wouldn’t be that soon, but soon enough.
I showed her four jars and told her we were going to decorate them. “What does that have to do with ‘llowance?” she asked. I went on to explain to her that with money came responsibility. That each of us was responsible for taking care of our needs and those needs involved more than getting want we wanted right now. Every week, we were going to divide her allowance between the four jars. The jars were labeled spend, share, save for now, and save for later. I used stories and examples to illustrate the concepts of spending money, charity, short and long-term saving.
By the time the four jars were covered in glitter, paint, and stickers, my daughter and I had come up with a plan for her to purchase the ballerina doll at the end of one month. The plan involved using both her short-term savings and spending money. It also involved introducing her to the concept of financial planning and success. Below are some tips you can use to help your child learn some early money lessons.
• Introduce Money. Young children take pride in learning how to count. You can use this skill to introduce them to the concept of money. Gather pennies, nickels, dimes, quarters, and one, five, ten, and twenty dollar bills. Show your child how money adds up by putting coins and bills in groups. Show her that five pennies equal a nickel, five nickels equal a quarter, four quarters equal a dollar, and so on. Also, play lesser and more than games. Ask your child which is more, a one dollar bill or a five dollar bill? Then ask which is worth more a five dollar bill or a ten dollar bill? Eventually, your child will begin to comprehend the concept of money in terms of numbers.
• Practice Spending. Once your child is familiar with the concept of money and worth, put that knowledge to the test. On a trip to the store, pick out an item and show your child the price. Ask her how many dollars and coins she would need to buy the item? Over time, she will be able to equate numbers with money and money with purchases.
• Allowance. When your child understands money and its purpose, then it is time to start making her financial lessons more concrete. Decide on an appropriate allowance for her age. Also decide what you expect for that amount. It is important children learn that money is earned, so age appropriate chores should be part of receiving a weekly allowance. So should consequences for not completing those chores. No chores, no allowance. This will help motivate your child. It will also introduce her to a good work ethic and give her an opportunity to feel good about herself. Everyone is proud of a job well done.
• Saving. It is not enough to give your child an allowance. You need to show her how to manage her money, starting with saving. Explain to your child there are two kinds of saving. There is saving for something you want now and there is saving for what you will want in the future. Tell her that both types are important and need to be planned for. You should decide how much of her allowance she puts into short and long term savings. More than likely, she will easily grasp the concept of saving for a toy she wants. Saving for the future might be a more difficult point to drive home. This might be accomplished with storytelling or make believe. Ask her questions about what she wants when she grows up. Ask her if she wants to go to college, drive a car, or buy a house. Then explain that all these things are big expenses and if she starts saving for them now, she will be able to have them when she wants them later. Don’t worry if she does not seem to comprehend this at first. Just get her in the practice of saving. Eventually, with maturity, she will understand and by that time she will be well on her way to saving for her future.
• Sharing. When children are young, it is hard for them to think about helping people they don’t know. But like saving for the future, in time they will understand the importance of charity. Like saving, it will be up to you to determine how much of her allowance should set aside for charitable causes or donations. Help her pick out which causes are important to her and explain how her money can help.
• Open a Savings Account. Many of you may have already done this for your child. If not, now is the time. Take your child to the bank with you when you open the account. Let her take part in the process, and after you are done, celebrate with a small treat. Let her know she is taking an important step, and set up regular times during the month for you to go to the bank together. After she makes a deposit, let her look at her bank book. Let her see on paper how her money is growing and she is reaching her goals.
Like many other lessons we teach our children, learning how to manage money will stay with them throughout life. Giving children solid knowledge and the tools for financial success will ensure they are able to meet their needs and take care of themselves. Now and in the future.