As a parent, you want only the best for your child, and sometimes, you lose sight of your parental objective: teaching your child to be a responsible adult. While it can be difficult to juggle the many lessons you wish to pass on to your child, teaching children financial responsibility can ensure they enter the adult world with adequate experience and knowledge. The objective is for parents to instill a sense of teamwork and fiscal responsibility from an early age, and you can do just that with four easy to follow steps.
1. The Citizen-of-the-World Concept
Before a child can or should begin learning about financial responsibility, they need to know how to be a citizen-of-the-world. Everyone has a responsibility to care for their environment and family. Children are susceptible to the concept of doing things for the good of the family because they do not have a firm idea of money or entitlement.
Start having your child clean up their toys or bedrooms from a young age. You can pick other chores or activities that contribute to the household that you feel do not require compensation. These tasks should match the age and ability of the child. For instance, while cleaning up toys may be an acceptable task for a three-year-old, doing any deep cleaning chores without supervision or assistance might be unrealistic.
2. The Importance of Earning an Income
It does not take long for a child to start asking for toys or other items that cost money. When they are old enough, you can introduce the concept of earning an income through an allowance model.
When you feel your child is ready, create a chore list outside of the citizen-of-the-world duties. The list can include doing the dishes, taking out the trash, walking the dog, etc. Again, everything should be appropriate for their age.
Each chore should be worth something, and the culmination of all the tasks should equate to a fair allowance. Many parents choose to match the amount to the child's age. For example, a five-year-old would get five dollars. How much you give is up to you.
3. Cause and Effect for Little Ones
Part of learning finance is understanding the limits and value of a budget. Your little one needs to learn about choices and purchasing power. It is not uncommon for a child to want more than they can afford with their allowance. They need to realize that sometimes you need to wait to buy everything you want.
To help your child learn about choice and cause and effect, take these moments of wanting more as an opportunity. If your little one sees two toys they want, but they can only afford one, give them the power to pick which toy they get, and explain that choosing one means they have to wait on the other.
4. Budgeting With the Jar Method
When your child gets older and makes a more significant allowance, it is time to discuss the importance of budgeting. The jar method can help you teach your child about fiscal responsibility. Still, it can create discomfort because they may resist putting a portion of their money aside rather than keeping everything. Even if you experience some resistance, the lessons your little one learns now will serve them well throughout their lives.
Donation Jar
The donation jar can connect with the citizen-of-the-world concept. Your child should put at least 10% of their allowance into the donation jar. At the end of the year, they can give that money to a charity of their choosing; or, depending on their age, you can decide for them.
Short-Term Savings Jar
The short-term savings jar requires a deposit of up to 30% of your child's allowance. You can work with your child to decide on an appropriate savings goal. Perhaps there is a toy, book, or activity that they want to do. Because this jar is short-term, it can be emptied multiple times throughout the year and spent.
Long-Term Savings Jar
The long-term savings jar also requires a deposit of up to 30%, and your child must leave the money in the jar for six months to a year. This jar is meant for more significant purchases, such as a bike or game system. You can also push the lessons of savings further by including interests earned into the equation, adding that from your own money at different intervals.
Quick Cash Jar
The last jar is the fun jar, and it can make up 30% of your child's allowance. The money in this container can be spent whenever your little one wants, but they have to wait until their next allowance for any other purchases when it's gone.
An allowance is an excellent opportunity for a child to learn about fiscal responsibility. If you currently have too much debt to provide an allowance, consider consolidating your debt with a loan from LoanConnect.
