|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
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.
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
Set up three piggy banks for your
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
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
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.