We all want our children to become financially independent one day, but how do we get them started on this path, especially at an early age?
I believe the most important financial principle you can teach your child early on is that managing money is about choices. Money doesn't grow on trees (as the old saying goes) and therefore they need to be given choices on how to spend it.
We give our son an allowance of $3 a week. It's less than the federal minimum wage, but I give it to him in cash so the authorities can't trace it and accuse me of not paying social security (LOL). Anyhow, the $3 gets divided into three containers: spending, saving, and giving. The spending is for things that he wants now. The saving is for things he might want in the future and the giving is for the offering plate at church.
He is allowed to buy anything his heart desires with the spending container: candy, toys, flowers for the ladies, airfare to Mexico. Anything goes really.
He woke up today asking to buy a toy so we took $12 from his spending container and placed it into his Cars wallet before we went to HEB for some grocery shopping. On the way, I told him that if he didn't find a toy he liked at HEB that we would most likely be going to Academy and Walmart (which he hates) later in the day, so he needed to make a decision about whether to buy one at HEB or wait until we go to the other stores (this was a delayed gratification test).
We arrive at the toy aisle and he looks the racks up and down, pointing at toys and asking whether $12 is enough to buy each one. He narrows his choice down to a car and two different motorcycles. He then asks the following questions [along with my answers]:
Can I buy a car and a motorcycle? [no]
Is a Corvette faster than a motorcycle? [yes]
Is a Mustang faster than a motorcycle? [yes]
Is a green motorcycle faster than a yellow motorcycle? [it depends]
Is a cheetah faster than a Corvette? [no]
I could see the wheel spinning in his head as he started to focus in on his decision.
Will they have motorcycles at Walmart? [yes]
Does Academy have cars? [yes]
Can I get a toy here and at Walmart? [once again, no]
"Okay, I want the car," he says.
Not only did he make a choice based on the basic financial principle of having limited resources, he did so knowing that another store might have had a cooler car or motorcycle, but he was willing to roll the dice right here and now at HEB. This is the beginning of understanding the opportunity cost of money.
The story doesn't end there. It would have been easy to add the car to our basket and have him repay me for the cost of it. Instead, we handed him his wallet and he handed the money to the cashier. I believe this is a very important psychological aspect of money, especially for kids.
He sees that money is exchanged for things and more importantly, they might hand some change back to him!
Of course, being the astute financial whiz that he is, he proceeds to ask the cashier for HEB Buddy Bucks that he can use at the game wheel, the points of which can be used to buy some cool stuff.
That's my boy.