How to Teach Your Kids About Money

Teaching kids about money can be difficult if you have gotten into the habit of simply handing them their allowance and letting them do with it what they please. I have developed an easy plan that helps me to teach my six and ten year old children about banking and investments that has worked very well for our family so far.

First of all, each child is assigned one chore they must complete each day. For doing this, they receive $5 a week for their allowance. Beyond this, there is a list of chores that can be done if they wish to earn additional money. The amount they earn is based on how long the chore takes to complete. Each 10 minutes is worth $1. For example, if my daughter puts the dishes away (which takes about 10 minutes for her) she will earn $1 and if my son washes the car (about an hour) he will earn $6. This works great for our family because the chores that need to be done get done and the children are able to learn that they must work if they want more money.

I set up banking binders for each of my children where they store their money. I printed out spreadsheets from Excel with columns for deposits, withdrawals, and totals. Each time the children earn any money, we go to their binder and deposit it into the front pocket and mark down the amount. Then we add it to the Total column to show them how much they have all together. If the children want to spend their money, we write the amount in the withdrawal column and subtract it from the total. With this method, the children are always able to check how much money they have. I have found that they are more careful about their spending now that they realize how much of a dent it puts in their total amount. This system also works to get them to help out more around the house when they are saving for something big. It is more exciting for them to watch their money grow and we can calculate how much more they need before they can buy whatever it is that they've been wanting.

More recently, I expanded this idea to help teach them about investments. If a child tells me that they want to save some of their money, I will put the amount that they choose plus 50% in a special envelope (if they want to save $10, I will give them an additional $5). They understand that they are then not able to spend that money for an entire month. This is helping to teach them about interest and the importance of not spending their money as soon as they receive it.

Hopefully these lessons will benefit my children long into the future and they will be responsible with their money even as adults. I believe this is one of the most important skills to teach children and now is especially a great time to do this because the current situation is a great reminder of why it is important to save money.