Talking To Your Kids About Money

Make saving and investing for kids fun, not work! Here's how to help them set short- and long-term goals to become financially self-sufficient.

[next] suggestion is to give each of your kids, elementary age and up, accountant ledgers and have them come up with their own categories and items. These might include clothing, entertainment, music, and whatever else your kids [enjoy]. Ask them to keep track of their own spending, and maybe give them some kind of reward, financial or otherwise, for every week when they have kept track of their numbers. Give them something that will motivate them to keep on track, even [something] as simple as a day off from chores. Make it into a game or competition if you have more than one child, especially when they’re young. Give them the idea that keeping track of their money can be fun.

My friend Jennie introduced me to the Star Chart. Her Aunt Marilyn drew up a list of chores that Jennie and her cousin Brietta routinely neglected to perform around the house. Next to each chore, she put a value–one star, two stars, three stars–with the most despised chores (vacuuming, cleaning the litter box, and so on) receiving the highest star value. After completing a task, Jennie and Brietta would receive the appropriate amount of stars. They would then anxiously look at the bottom of the Star Chart–which acted as a scoreboard of the cousins’ participation–to the “star exchange rate,” the amount of actual money each earned star was worth. Let’s say that five stars equaled one dollar. Once a month, the cousins were allowed to cash in their “stars,” so if they had earned 20 up to that point, they had $4 to spend.

While this may sound like outright bribery (or, at the very least, a legal system of child labor), Jennie told me that the Star Chart taught her much more than the simple math involved in converting tinfoil stars to cash (which may be the root of her interest in foreign currencies and exchange rates). Not only did the system encourage her to help around the house with less complaining but also it taught her how to save up for that once-a-month spending spree. Jennie quickly learned that if she used all the stars she had accumulated in a given month (about 35), there was no way she’d be able to buy the coveted dome tent (worth roughly the equivalent of 85 stars!) she’d been eyeing. Instead of spending all her stars, Jennie would buy one or two five-star items, letting the rest of her stars ride until the next month. In three months, she had her tent and a newfound respect for saving and patience.

But the kids weren’t the only ones to reap benefits. Her Aunt Marilyn was pleased when she realized that with her system the cousins were fighting over who was going to vacuum–except now they both wanted to! And, rather than having a set allowance, the girls were learning how they could control their income by the level of effort they put [forth].

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