My daughters frequently have more cash in their savings than I have in my wallet. In fact, combined, in a just a few months, two of them saved up enough money to buy a digital camera – at ages 6 and 8! They didn’t receive the money from an “allowance,” instead, they worked hard, earned the money, and saved it. Along the way, they have learned how to earn money, the consequences of not working, how to tithe, and what it feels like to not have enough money to buy something they really want.
Teaching children fiscal responsibility – how to appreciate and handle money – is an important task for parents. How many grown children have you met who are in dire financial straits? Are you one of them? I wish my parents had taught me the right personal finance principles when I was 5 or 6 years old. The first thing to teach your children is…
Money is a Finite Resource
My little ones frequently ask me “daddy, do you have to go to work today?” and then follow up with a “why?” I begin teaching them very young that work provides the money which pays for the house we live in, the food we eat, and the clothes on their back. Money is a finite resource and we never seem to have enough of it! This is a foundation for your children to understand about money: money is a limited and scarce resource, you have to earn it, and you cannot simply make it up when you do not have it. If they understand this principle, a lot of big financial mistakes might be avoided.
You Must Work to Earn Money
We do not provide an allowance in our house. We believe that an allowance is similar to a handout or a subsidy and we want our kids to understand that you must work to earn money. One day when our older two were playing with dolls, the 8 year old was trying to give something to the 6 year old. Our 6 year old responded in a play voice, “no, you cannot give that to me, I haven’t worked for it.”
Believe it or not, the lack of an allowance for our kids has not hindered their growth or caused them to be upset with their parents, instead, we provide them an opportunity to earn money through work assignments.
You Work to Earn Money
We have a assignment worksheet for each of our children (well, the ones 3 years old and up!) which they work with each week. The assignment worksheet has a column for assignments and a checkbox for each day the assignment is accomplished. The assignments may not need to be completed each day, but our girls must complete their assignments to earn that portion of the income.
We also have normal family chores such as cleaning their bedroom and putting away the dishes, we use the work assignment sheets to other things for them to work on.
We assign each girl 5 items to do and if they complete the work each day during the week, they earn $1 for that assignment. If they complete all 5 items, they earn $5. Occasionally, we create bonus assignments so the girls might earn an extra dollar here or there during the week. At the end of each week, we pay the girls whatever they earned during the week.
Our old child is very good about completing her assignments, while the other two occasionally slip. When they see the 8 year old earn all of her income that week and they do not, it teaches a valuable lesson about completing your work.
We’ve provided a worksheet you can use with your children in PDF format. Download here!
Giving, Saving, and Spending
We have three envelopes for each girl: Giving, Saving, and Spending. As soon as each child is paid, they each place a dollar of their income into the giving envelope and then they can divide the rest of the money into saving and spending, with at least a dollar placed into the saving envelope. This teaches each child the importance of keeping balance in your life and not spending everything you earn. Our girls place a lot of their money into the saving envelope – hoping to save enough to make a big purchase.
When we started this with the girls, they each spent the money pretty quickly on small toys, but they learned that if they save up their money, they can purchase a much higher quality item – such as a digital camera!
It’s important to have the kids purchase something early in the process of the assignments as they will begin to understand the value of earning the money and continuing the process of completing their work assignments.
Learning the Value of Personal Financial Responsibility
The lessons you’re teaching your children about money will help them throughout their life. Teach your kids how to earn money, manage it, and control it.