As soon as our 5-year-old son was old enough, my wife and I began direct-depositing an allowance into his Mets wallet every week. Sometimes he completed his chores, mostly he didn’t—but we paid him the $5 anyway. My parents had done the same thing with me growing up. It seemed to be tradition.
Recently, though, I began to question what we were really teaching him about money: Is a chore-based allowance a good idea? Shouldn’t we encourage saving, too? After all, the only thing he talks about is spending. Should we open a bank account for him? What about charitable giving?
As Americans, we worry about the next generation’s financial IQ. One 2015 study found that 22% of U.S. teens lack basic financial literacy. The U.S. ranked seventh out of 15 participating countries in the study, with China, Belgium, and Canada in front. Getting kids on the right financial track takes constant planning, work, and communication.
Here, 12 tips for growing your rugrat into a responsible money handler.
1. Talk to your partner about money before you talk to your kids
“Even the youngest children—3, 4, and 5 years old—pick up our value systems about money,” says Michele Borba, Ed.D., an educational psychologist and the author of UnSelfie: Why Empathetic Kids Succeed in Our All About Me World.
And let’s face it—money can be a hot-button topic in a relationship. Data show that 40% of couples practice financial infidelity—that is, they lie to their partner about money—and that number is rising, says Ted Beck, the president and CEO of the National Endowment for Financial Education.
Financial conflicts—especially those that lead to disagreements and dishonesty—can really put a wrench in parents’ ability to pass along a cogent, positive message to their kids about money and how it should be handled.
Solution: “It’s really important to set the rules at the parent level so you don’t have arguments at the dinner table about money,” Beck says.
2. Offer an allowance based on weekly “pay” and “nonpay” tasks
Providing an allowance is still a smart way to go. “It teaches kids that the only way to get it is to earn it,” says New York Times best-selling author Neale Godfrey.
Her two-pronged allowance strategy: Make one list of “citizen-of-the-household chores,” or jobs kids do to chip in as a family, and another of “work-for-pay chores,” or those that let them earn dough. That way, they learn both the importance of pitching in as a family member and the value of providing a service to earn a buck.
3. Skip the direct deposit
“Hand the allowance over to the child so they experience ownership,” Borba says. There’s nothing like cold, hard cash to get the money muscle flexing.
4. Ditch the piggy bank
For very young kids, opt for a series of see-through glass jars—one each for saving, spending, and giving. (Try keeping a jar for loose change, then let your child decide which charity to donate it to when it’s full.) Being able to watch the money pile up can create an excitement they wouldn’t have otherwise.
5. Show them the money (at a brick-and-mortar bank)
In a world of online banking and bill paying, a real, tactile cash exchange is key, Godfrey says. “Around age 5, take your child to a physical bank and open a savings account,” she says.
6. Give kids an occasional place to earn as they play
For younger children, Beck suggests starting with a lemonade stand, and for middle schoolers, try garage or yard sales.
7. Ask them to contribute toward a higher goal
Set a small amount that the child must regularly put toward a family purchase—say, a vacation. It’ll demonstrate how shared responsibility can lead to a shared benefit.
8. Demystify the basic family finances
Once kids are old enough to understand, “show them the household bills—cable, gas, electricity—so they know how much things cost,” Borba says. If they can then help with some simple coupon cutting to save on groceries, or remember to turn the lights off to save on electricity, it will reinforce the importance of saving money whenever possible.
9. Introduce investing early
At around age 10, it’s time to show kids how to grow their money, Godfrey says. She suggests the platform Drive Wealth, since you can invest in fractional shares. “While parents legally call the shots on investments, kids can still buy, hold, and follow the stock on a mobile device.”
10. Give them some practice with plastic
It’s time to up the ante when kids reach middle school—but with caution. “You wouldn’t hand over the keys to a car, so don’t just hand over a credit card,” Godfrey says. Greenlight has a debit card that requires the parent to green-light the purchase.
11. Confess your own mistakes
When kids reach high school, sharing tales of your own financial blunders—secretly racking up credit card debt or making pricey impulse purchases—is a good way to start an honest conversation about money.
12. Stick to your plan
If you create a for-pay task list, be sure it’s done before handing over any allowance; if everyone has to contribute to the family trip to Disney World, don’t suddenly bend the rules. “The biggest mistake we can make is not following through consistently,” Borba says.
With this newfound info, my wife and I decided to tweak our 5-year-old’s allowance and made up a chart listing no-pay family jobs (line up shoes, hang up coat and bag, help with laundry, go grocery shopping with us, put toys away) and jobs for pay (feed the fish, put used clothes in hamper, clean his room).
Not surprisingly, we found that while it often takes some guidance and modeling to get him to complete family jobs, his jobs for pay are consistently taken care of—and fast.
Like building wealth, starting your kids on the “smart money” path when they’re young will lead to the best return on investment.