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Tuesday, May 21, 2024   

The Three Little Pigs: Your Child and Money
by Scott Danger
Scott Danger is a Certified Public Accountant with over 10 years of experience. His column, Moneywise, is a regular feature on the website Mommysavers.com. Scott is the father of two-year-old Sydney and lives in Minnesota. His column can be viewed by clicking here.
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Scott Danger

As a first-time parent, I wonder how I will handle many things. Lately, Iíve been thinking about how and when I will introduce my daughter to the concepts of money and saving and spending. I then realized that I have probably already started this process. While Iím sure she does not understand the concept of money, I know she knows what a grocery store is. I know she knows that we take things from the shelf and put them in our cart.

She also is learning that she is not allowed to do this. She also knows that the lady in the checkout line always smiles at her. She sees her dad give the lady some green paper and then we leave with our bags. Does she understand money and the transaction that took place? I doubt it. But, every week we go to the store and every time we are there, Dad gives the nice lady his green paper and every week we leave with our bags. Eventually, it will sink in. When we give someone the green paper, we get things. Thatís the concept. Even at ten months, they are learning.

In doing research for this article, I discovered that most experts agree that children should first have their own money to spend at age three or four. At this age, money should be something visual. A piggy bank is a great way to teach children the concept of money and spending, saving and investing.

As I was searching the Internet for more information on this topic, I found the following idea submitted by a reader on an investing web site. The concept is simple, but it teaches children about the benefits of saving and investing and spending in a simple and visual way.

Set up three piggy banks for your child:

Piggy Bank #1: The Checking Account

Any money put in bank #1 can be spent as your child wishes, without question. Once the money is gone, it's gone.

Piggy Bank #2: The Savings Account

Tell your child you will put 5 - 10 cents in that bank for every dollar they put in. This account can be used to purchase things only with the permission of mom and dad. The idea is to get this account to grow to allow the child to purchase things they want. But it is also the idea to teach your child to hold back at times when a purchase would dwindle the savings down to nothing.

Piggy Bank #3: The Investment Account

Tell your child you will put in 20 - 50 cents for every dollar they put in the account. This account should really never be used. The idea is to accumulate wealth. You may want to tell your child that they can have everything in that account at a certain age, or that it is their college fund. Frequently the contents of this account should be deposited in a real bank, or invested in a money market, mutual funds, or the stock market if possible. The child should be kept informed of the interest earned or the increase in value of this account.

Each time your child receives money as a gift or earns money, he or she should put some into each of the three accounts. Example, your child receives $10 from Grandpa at Christmas. Encourage your child to put $4.00 in piggy bank #3 first, then pay 'interest' on the investment by adding 80 cents. Then have your child put $3.00 in piggy bank #2, and add 15 cents to that account. Then have them put $3.00 in piggy bank #1. This will cost you about $1 for every $10 your child earns. However, the child will get such a kick out of seeing more money going into those accounts and the lesson learned is well worth it.

Above is just one example of the many ways you can teach your child about money. Whatever way you decide to teach your children about money, remember the most important thing is to teach by example. Show them that you are responsible with money and you will give them a great start to a long life of smart money management.



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