Learning to manage your money is one of the most important lessons in life. People that can manage money well may have all their needs met on a limited income, while poor money managers can drown in debt while having a very large income. The best time to learn money management is when you are young, so why not give your offspring an advantage by teaching your kids money management.
One of the most popular methods for teaching kids to handle money uses envelopes or jars. Each time a child gets money, the money is divided into the envelops that are labeled spending, savings, giving and taxes. Ten percent of the money goes into the giving jar and another ten percent goes to taxes. The remaining eighty percent is divided between savings and spending at a pre-agreed upon ratio.
Money that is placed in the taxes container is combined with family savings for a special occasion such as a vacation or other reward. While the child may have some say in how the money is spent, just like real tax money, he does not get to make the decision alone. The child needs to learn that taxes benefit everyone.
A second container collects money for giving to charitable purposes. You should decide with the child where the money will be given. Perhaps you will choose a favorite charity or your place of worship. Giving makes even the poorest person feel that they are rich.
Money in the savings jar can only be used for larger purchases. It should not be dipped into just because the spending money is gone. Remember your purpose is to teach money management skills. Consider opening a savings account for the child and making a regular trip to the bank for deposits of the savings jar. A few cents here and there can add up to a large amount of money.
Money which is left over is the spending money. The child needs freedom in spending this money as he chooses. He needs the safety net of home to learn that if all the money is spent the first day, then no more money is coming until the next payday. It is much better to learn this early than when first trying to live on one’s own.
Kids money management skills can teach young adults how to manage their money. Your child may not initially like the system, but as they grow into adulthood will appreciate the time that you took in training them about the proper use of money.
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