Without drastic improvement in their financial skills, of every six kids in this country today:

  • Five will be left behind in the global economy.
  • Four will never be able to manage a household budget.
  • Three won’t know how to save for retirement.
  • Two won’t learn to balance a checkbook.
  • One will likely declare bankruptcy during his/her lifetime.

Those are startling statistics. But they don’t have to happen. Not to your kids, at least.

For years I have stressed the importance of first teaching children about the four choices they have for money — save, spend, donate and invest — before beginning to hand over a regular allowance. To push that idea further, Id like to talk about the “teaching money choice” idea. In future posts I will talk more about each money choice and how to introduce each choice to your child. My hope is that when we are done, you will know how to easily but effectively introduce and weave each money choice into the way your child thinks about money on a daily basis. More importantly, you will know why it is so important to focus on this education now.

When you teach children they have choices about what to do with their money, you begin to teach them self-discipline and how to delay gratification. This comes from the simple repetition of asking of themselves, “What do I want to do with my money?” each time they have a dollar.

Studies show that children who learn discipline early in life are more positive, motivated, persistent in the face of difficulties and able to delay gratification in the pursuit of their goals when they reach age 18 and into adulthood. Children who do not master self-discipline are more troubled, stubborn and indecisive and less self-confident at age 18 and on.

To teach choice to children under about age 8, you need a “money choice” bank that your child sees every day. A “money choice” bank can be a piggy bank with four slots, or it can be four jars. The container doesn’t matter as much as the fact that there are four separate pots. Label them “save,” “spend,” “donate” and “invest.” The labels act as a constant visual reminder for your child to stop and think about what she wants to do with her money each time she has a dollar. Make sure the money container is see-through so your child can watch the coins accumulate. Research shows that the excitement of watching coins pile up breeds future savers.

And remember to use only coin and currency at this stage. If your child receives a dollar, break it down into coins to give him more to work with. If she received a “check” from Grandma and Grandpa, give some of that money back to her in cash to work with. This will let her see that checks translate into money.

Tweens and teens need a tool that is more sophisticated than a bank or four jars. Give them a personal finance organizer that has paper for keeping track of their goals and zippered plastic pockets for keeping their cash. But the same rules apply to older children, too.

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Written by Susan Beacham
Susan Beacham founded Money Savvy Generation in 1999 after almost two decades in private banking and investment management complemented by considerable time teaching at the elementary level.

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