One of the things we constantly preach about in terms of savings is to start early in order to make it easier to budget and maximize your investment, and the same thinking applies to learning financial responsibility — start learning early.
Now, it may be a bit late for readers of this column, but you can “pay it forward” by teaching your children the importance of watching their finances, both in terms of budgeting their daily spending effectively and also saving for the things they want.
It’s still fine to hand over a couple bucks, but many homes have done away with the action of simply handing over a few bucks to children, simply “allowing” them to be children. The fact is that in today’s consumer market, money does not go far, so it’s important to teach children (a) the value of money, (b) how to budget, and (c) how to save.
Teaching the value of money is not as easy as saying “money doesn’t grow on trees.” I prefer “money is so hard to earn and so easy to spend.”
Keying in on the first part of that statement, give your child a chance to make more money. Say you give your child $5 per week as a “base salary.” He or she gets this just for being your kid. The idea is that some things are expected for this allowance — just as you cook meals for your family and run the vacuum around, they are expected to get themselves ready for school on time, brush their teeth and hair every day, bathe regularly and keep their rooms in some sort of order.
But then also give them the chance to earn more money — a commission, so to speak. Cleaning up their rooms once a week may be worth another dollar, putting their dirty clothes in the laundry room hamper may be worth a dime, putting away clean clothes in the dresser could be worth another dime, loading or emptying the dishwasher may be a 25-cent task, hauling the trash to the curb is worth a quarter, etc.
This shows them that working harder earns more money — a lesson that will resonate well with them when they get out into the working world — and that they can control their own earnings. At the same time, you can teach them the basics of handling money.
A good way to start is with the jar theory of budgeting, where you literally label jars or envelopes “groceries,” “gasoline” and “fun,” as examples, and then put actual money (the ubiquitous debit card is making the whole thing harder too!) in them to cover those costs as they arise, taking out the exact amount of money to pay.
For children, you can start off with something as simple as a jar labelled “spend” and another labelled “save” and have them break off their earnings into cash they want to spend right away and money they want to save up for something bigger. Depending on your values, you may want to add a third jar — give — to illustrate the importance of charity.
So at the end of the week, instead of handing over a $5 bill, for example, give them five loonies and they have to put at least one in each of the jars. This teaches them planning — you can choose to save just one dollar and spend the rest, but then reaching that goal of a new video game, for example, will take a considerable amount of time. Similarly, they may choose to bank $3 toward that video game more quickly, but then they will only have enough for one chocolate bar, for example. They can also move money between the jars, so if they find themselves short halfway through the week, they can take some out of their savings, or if they have surplus cash-on-hand, they could choose to add it to their savings. The “give” jar, if you have one, should be regarded as untouchable — what goes in there stays in there.
As kids get older, you may want to introduce more financial responsibility into their lives, such as giving teenagers a back-to-school lump-sum payment and allowing them to spend it on clothes, shoes and backpacks as they see fit, rather than dragging you to the store and expecting you to buy name-brand everything because “that’s what all my friends are getting.”
It’s fairly simple and kids get an idea of the gives and takes of money handling. In the process, you may also find that breaking down the handling of money into simple terms makes budgeting a lot less complex.