It can feel overwhelming to try to . Especially if you have plenty to spend, how do you help your child learn the value of a dollar? After all, you’re providing your kids with everything they need. Then on their birthdays and holidays, they probably get everything they want — maybe even more.
Of course, you want your kids to have everything. At the same, you know you won’t be providing everything forever. Someday, your kids will have to make their way, financially and otherwise. To help facilitate that, you’ll need to teach them how to be financially responsible. One of the best ways to do that is to start lessons early and to stay consistent. Here is 3 Ways to Teach Your Child the Value of a Dollar
1. Introduce and Adjust their Allowance
You want to teach financial literacy for kids as early as possible. While many people might advise you to tie your child’s allowance to chores, that can be challenging. At first, you want your kids to do household tasks to contribute to the family. You don’t want to pay your kids to do the bare minimum. Making their beds, getting dressed, and cleaning up their toys should be standard. You don’t want to teach them to get paid for basic life skills.
Instead, teach your kids to do their chores as a life skill and give them an allowance anyway. That’s right. Give them money weekly from an early age, just a few dollars, to start teaching them about finances. Some parents like to give their children the number of dollars that match their age. A three-year-old would get three dollars, a four-year-old would get four dollars, and so on. Give this allowance weekly, in cash, and give them a place to put their dollars.
Then, as they grow up and learn more about money, you can tie extra money to extra chores. Make a list of big projects you need help with around the house or the yard. Have these projects be those you might pay someone else to do. Think of yard work, deep cleaning the house, or washing windows, for example. Then, in addition to their weekly allowance, you can pay your children for the extra work.
2. Let Kids Spend Money and Let Them Fail
Now, as you begin giving your kids an allowance, say around the age of two or three, you can also allow them to spend that allowance. Take them to the toy store or the candy store with their physical dollars in hand. Allow your child to pick something they want and show them how much money they have compared to how much the item is worth. In these cases, it is helpful to have those physical dollars on hand. This approach creates a concrete memory and learning process.
Know that these lessons will likely not be easy at first. Your kids may get upset that they cannot have the thing they want. It will be up to you as the parent to be strong, firm, and gentle. After all, you probably get upset when you don’t have the money for something you want, too. Kids are just learning this concept, so they’ll need you to help them through it. As they grow older and continue these lessons, they will get better at understanding.
One helpful tip on this journey is to make sure you don’t spend your own money. Try to keep toys, candy, and extraneous gifts for birthdays and holidays. That way, kids learn that if they want something outside of those times, they will have to spend their own money. And don’t be afraid to let them fail. Failure is a big part of success. Let them spend all their money on a ridiculous toy that will fall apart in one day. Then, teach them to save for what they want down the road.
3. Be Your Kid’s First Lender
When you feel your child has grasped the concepts of spending, earning, and saving, teach them to borrow. You can be their first lender. Instead of making them save for a big-ticket item, draw up a contract with your kid. Set the terms of the loan, including loan amount and weekly or monthly payment amounts. This lesson will help your kids see what happens when you borrow against future earnings. It will allow them the feeling of buyer’s remorse without real-life risk.
Don’t be afraid to let your kids fail at borrowing, too. They have to forget to make their payments, default on their “loan,” and make late payments to learn. When they fail at borrowing, you can teach them about credit scores. The next time they want to borrow, you can discuss trustworthiness. Then, connect this discussion to the real world. This talk can help you teach your kid about car loans, credit cards, and mortgages.
Finally, you can include compound interest rates in any loans you offer your child. As your kids get older, they will start learning about percentages and interest rates in school. Use these school lessons to teach practical lessons about borrowing. Show your child how interest is compounded over time, and how they will ultimately owe more than they borrowed. They will surely think twice before borrowing unnecessarily in the future.
While plenty of other practical lessons exist to teach kids about money, these three are the foundation. When you work on these financial literacy skills with kids from an early age, you set them up for success. Let them learn the basics and fail repeatedly while still in the safety of your home. Then, when it is time to get a credit card, a car loan, or a mortgage, they will be smart. This method of lessons and natural consequences is a sure-fire way to instill in kids the value of a dollar.
