How to teach young children basic financial concepts
Right now, in your home, you have a wonderful opportunity to get your child financially set for life. It’s not about how much cash you give him or her: it’s what you teach them. Here’s a simple way to help children understand money from different perspectives.
A young child absorbs such concepts easily. He or she will follow your lead, learning fiscal responsibility that brings lasting prosperity and financial confidence throughout their lifetime.
Teach your child to divide his or her allowance into three parts and put these into three jars: one is for savings, one for giving, and one is for fun. Glass jars are best because children can actually see their cash growing.
Each time your child receives their allowance, birthday cash, money from grandparents, etc., he or she is expected to divide it into three. The jars represent the different uses for money. At this age, the exact percentage that goes into each jar does not matter, just that each jar receives a reasonable amount.
The giving jar teaches children to appreciate how fortunate they are; and how to be helpful. Your child will learn to use money to give back: through supporting a worthy cause, or perhaps by directly helping someone who is in need. You can offer your child the option to pay themselves by keeping the money and volunteering instead: teaching that giving of his or her time is powerful.
The savings jar teaches children to plan for long-term goals. At this age, it will be for simple things that cost more than a week’s allowance. Parents can offer to contribute 50% toward a big goal, which shows support for your child’s effort. Grandparents can also be involved in matching a child’s savings. This jar teaches patience and saving for a greater reward.
The fun jar is for your child to spend however he or she pleases. It teaches your child that money can be used to enjoy life—a valuable lesson. Because, while savings are important, and giving to the community is equally important, life is no fun without some cash to use for pleasure.
It’s important to ensure your child is consistently putting money into each jar. It helps with the subconscious lesson that funds need to be allocated in different ways.
Our attitudes about money are developed while very young and grow accordingly. Teach your young child life skills that last a lifetime. Your Financial Advisor can offer you more ways to teach your child financial literacy.