Why is it that many parents don’t take the time to teach their kids principles of financial literacy? Perhaps it’s because they haven’t really learned the principles themselves? Perhaps they feel children can’t understand these principles? Both perceptions are inaccurate. Here are a series of tangible tips parents can use in their homes to help expose principles of financial literacy to their children.

Instead of simply giving your children an allowance, have a discussion about what can be done with that allowance. Essentially, there are only three things you can do with money: spend it, save it, or donate it.

The Boxes Strategy

Your goal in this strategy is to provide a visual example to your child to ensure s/he is cognizant of what s/he is doing with each dollar received. This will be their first exposure to basic budgeting strategies. If you’re wondering how old your child must be before they can start this exercise, my theory is, if they’re old enough to talk back to you, they’re old enough to learn about money. I’ve already started with my 6-year-old nephew, and he’s learning pretty well.

Step one: First take three shoe boxes and have your child label them in big letters: SPEND, GIVE and SAVE.

Step two: Put these boxes in a prominent location in your child’s room so s/he can see them each day. 

Step three: Each time you give your child any amount of money, have a conversation with them starting with this simple question: “How much are you going to put into each box and why?” Here’s where you can have a great learning conversation about the importance of each box. The value of giving back to others less fortunate, and the value of saving, and the value of having a budget for the money in the SPEND category are the most important life lessons to learn. 

Step four: At the end of each month (or every three months at the most), make these actions real to your child by planning trips to make deposits of the various sums of money in the GIVE and SAVE boxes.

For the GIVE box, both you and your child should select an organization to be the beneficiary of the funds in this box. Make sure you and your child take a trip together to the homeless shelter, orphanage, church, etc. so s/he can see you giving their money to a good cause. Have a conversation about that cause and why it’s important s/he helps other people. It’s important to develop these habits early, and a habit of giving is a great habit to have.

For the SAVE box, both you and your child should deposit the funds into a 529 account with him/her listed as the beneficiary. Allow your child to see the statements regularly, then ask this question: “You deposited $20 into this account. Why do you think the account now reads $20.25?” Now’s your chance to have a conversation about interest and making your money work for you. Ask yourself when you learned that money can actually work for you!  

Above all, make sure you communicate to your child that the more s/he spends his/her money, the less s/he will have to give to others and plan for his/her long term financial goals, which should be far more important than immediate material items. This is one easy way to build a relationship with your child, as well as teach the crucial principles of financial literacy. It’s easy to accomplish, and your child will thank you for it later in life. Teaching children about money shouldn’t be an anomaly. It’s just common cents.