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Many kids watch their parents use credit cards to purchase items at the store, so often they have no understanding of the value of a dollar. Too many kids think you can just swipe a credit card for whatever you want from the store, so kids need to learn the value of a dollar at an early age. Learning how to manage money can begin from a very young age. Use this simple strategy to set your kids up for a successful financial future.
Begin with an “Income”
Whether you decide to give an allowance, or have your kids earn money with chores, they need to have money coming in to be able to learn to manage their money. The amount of money and the way you give is completely up to you and your family.
We decided to begin with a $1 a month for their age. (Ex. My 4 year old receives $4 a month). This is money given to them at the beginning of the month, but it does have stipulations such as good behavior and making sure their chores are complete. With consistent money in, it is easier to learn how to budget.
Choose Your Budget Categories
It’s best to keep it simple to a few different categories since children don’t have an extensive list of categories in their budget. We decided upon 4 main categories: tithe, long-term savings, short-term savings, and fun money.
1. Tithe (10%)
As we tithe with our money, we wanted our children to learn early on how to set money aside for God first and foremost. This is our first category as God receives the first fruits of our labors.
2. Long-Term Savings (30%)
This is money dedicated to their future – their adult future. Including buying a car, a house, college, etc. Children need to learn to set goals. Children that do are more successful as adults. It helps with financial strategy and planning. A bonus is teaching patience and combating the instant gratification that our children are immersed in.
3. Short-Term Savings (30%)
This is for things that they want as they are growing up. It could be used to set savings goals for bigger items they want. Teaching them to save up and wait for the things they want teaches them values they will need for a successful financial future.
4. Fun Money to Spend Now (30%)
This category could be spent on anything they wanted – candy, toys, outings, etc. This gives them the freedom to enjoy the money they have immediately while also teaching fiscal responsibility of saving 60% of the money they receive.
Each time a child receives money, teach them to immediately divide the money into categories for saving and spending. Not only does it teach financial planning and strategy, but it also teaches them patience to save up for money for things that they want, plus gives flexibility for them to enjoy their money immediately too.
Use a Classic Envelope System
Create envelopes named with each category of saving or spending so kids can watch the money going in and out. They can even further divide their short term savings or fun money to save up for specific toys, items, or activities they want.
Involve Kids in Financial Planning
Help your kids set financial goals for the things that they want. Teach them to calculate how much money they need to save and determine how long it will take them to save with their current allowance, or how many chores they need to complete. Celebrate with them as they set goals and achieve those goals. Instilling financial responsibility early on will set them up for a very successful future!