The beliefs, behaviors and habits we develop about money during our childhood can last a lifetime. For better or worse, they can affect our attitudes about spending and saving as adults.
Parents and role models can help children develop a healthy relationship with money from an early age. My wife and I successfully have used a simple system to teach our son how to manage the money he earns at home.
Our approach grows out of the primary ways we handle our money: saving, spending and giving. Once your kids are old enough to do some simple work around the house, this system can give them a solid foundation for developing money skills. We started when Malcolm was 5 years old.
The three principles of this system are:
1. A commission is paid for work done.
2. The commission is divided into three envelopes: save, give and spend.
3. Fines are paid out of the commission for inappropriate behavior.
Get started by explaining to your children they have the opportunity to earn some money, learn how to handle it responsibly and make some decisions of their own along the way.
Introduce the three envelopes to make the system more concrete. The save envelope is for future purchases; the give envelope is for charitable donations of their choice; and the spend envelope is for buying personal items. Help your kids pick a savings goal – something that will take at least a few weeks to save for so they can learn about delayed gratification.
Your children will be earning the commission, so together choose three to five tasks for which they will be paid. Also, identify three to five unpaid tasks they will be responsible for as a family member.
Pick age-appropriate jobs and commissions; don’t forget to set expectations about how and when the tasks will be completed. For example, cleaning their rooms may be something they are expected to do without pay, but helping with laundry is paid work.
Fines are used to give inappropriate behavior tangible consequences. You and your children, for example, might pick arguing as a 50-cent fine and hitting as a $1 fine. At this stage, it’s important to let your children help with identifying inappropriate behavior – they know what bothers you and what the house rules are. They also should help set the amount of the fines.
Commission, minus any fines, should be paid weekly or on another consistent interval. And commissions should be divided into the three envelopes.
Our son must put at least $1 in each of the three envelopes, provided he has earned at least $3. Any money beyond the $3 goes into envelopes of his choosing.
Our experience with this system has been wonderful. I see Malcolm learning how to handle his money responsibly. He is generous in his giving, proud of himself after saving for a big purchase and is a cautious shopper after making some poor buying decisions. I think he’s off to a great start.
www.DebtFreeTribe.com Durango resident and personal finance coach Matt Kelly owns Momentum: Personal Finance.