When I told my daughter, then 4 years old, that I didn’t have money to buy her a toy, she said, “Just go to the bank and they’ll give you money.” I frowned at her and tried again, explaining that I had only a $10 bill and what she wanted cost $20. She said, “It’s OK, just use your card.”
I realized she had no idea about the value of money. I really couldn’t blame her because I was never great at managing money as a little girl. I was careless and would leave my purse behind at a restaurant or I’d lose my allowance. Financial experts say children as young as 3 can grasp concepts such as saving and spending. Researchers at the University of Cambridge found that kids’ money habits are formed by age 7. These statistics were enough to give me a new mission to help Sofia better understand the value of a dollar.
The best approach for us has not been a “sit down and explain how it works” kind of lesson. Instead, we take advantage of everyday teachable money moments. When Sofia turned 5, we decided to use money expert Dave Ramsey’s “Spend, Save & Give” jars approach.
I labeled three jars. We began giving Sofia a weekly allowance of $5 ($1 per year of age). She divides that equally between the three jars. The “Spend” money is for small purchases such as candy, stickers or any small treat. The “Save” money is for saving for more expensive items. The “Give” money is for Sofia to donate to our church, a charity of her choice or to buy something for someone else.
Financial expert Beth Kobliner advises teaching kids ages 3 to 5 how to wait to buy something they want, which is a difficult concept for kids this age. In a world with instant downloads and overnight shipping, saving up two weeks’ worth of allowance to buy something she really wanted taught Sofia a lot of patience.
According to Ramsey, children ages 6 to 13 should be taught how to spend wisely. You can start by explaining why you buy generic brands versus name brands or how buying in bulk gets you a cheaper per-item price.
I don’t have teenagers yet, but my friends say they don’t save as much because teens tend to spend on expensive stuff like electronics, cars and other big-ticket items. The value of long-term saving or investment goals is a good lesson for this age. Conversations about the dangers of credit card debt, credit scores and college funds, financial experts say, are also important in the pre-teen years.
To help Sofia keep track of her income and expenses in a fun way, we use a simple worksheet. We write down every time Sofia receives her allowance, takes money out and what she spends it on so at the end of the month she can see her activity.
Ramsey also suggests making a wish list of things your kids want to do with their money. Then help them rank the list by discussing what’s important about each wish – an invaluable lesson about setting priorities they’ll need their entire lives.
I feel the responsibility to teach my girls to make smart money choices for themselves. Even just grocery shopping, role playing at home or identifying the different kinds of coins or bills for fun can get them interested and confident talking about money, where it comes from and what to do with it. All good lessons for our children and great reminders for parents, too.
Daniella Guzman is the anchor on NBC4 Southern California’s “Today in LA” weekday morning newscast, 4:30-7 a.m. A mother of two, Daniella’s column, “On the Record,” brings her views on parenting, fun family activities and her take on work-life balance. Follow her on Facebook, Twitter and Instagram @daniellanbcla.