This is a guest post by Robert, who lives in Calgary and worked as a financial adviser before retiring at age 35. He is married, has three kids and has returned to school with the goal of eventually living and working overseas.
My oldest son, Michael is eight years old and money burns a hole in his pocket. He earns $5 once or twice a month for returning bottles and cans that we use for recycling. This gives him some money that is his own, and he can do whatever he likes with.
At first, he spent it on candy, but I soon realized that he has a lot of trouble holding on to money. One time, he spent all $5 at a bake sale at school where each item was $0.50. He got more food than he could eat, just to have the satisfaction of spending his money. One of the side benefits was seeing him being generous in sharing the treats that he bought. I think that having your own money that you can spend is a necessary first step to be able to build the confidence for saving a portion.
After Michael had an opportunity to spend his money regularly for about a year, my wife and I decided that it was time he learned to save. He often wants to play games on my iPhone and he has talked before about having his own. Maybe eight is a little young, but we told him that if he saved his own money, he could buy an iPod Touch. This was triggered by a gift of $100 from an aunt (who visits rarely). It made the goal realistic, but also made us realize that we weren’t comfortable letting him make the spending decision all on his own. (We can’t handle $100 worth of candy and cheap toys.)
Having a goal is a good motivator. Now Michael is able to approach “I want” situations as a choice between what he wants now (usually only briefly) versus the iPod Touch that he’s saving towards. But having cash around was still a problem, so we went to the bank and opened a savings account for him. (Pro tip: even if the bank offers a kid’s account, it might be far easier to open a second account in your own name.) Michael is very proud to have his own debit card (used only for deposits so far) and he keeps his receipt from each deposit to track his progress toward his goal.
It’s simplistic, but having a bank account has encouraged my son to be responsible with money and having a medium-term goal (he’ll have it by Christmas) has given him practice with trade-off type decisions (this vs. that, now vs. later). How do you teach kids to make smart choice about money?