By Susan Beacham
When you teach children that they have choices about what to do with their money, you begin to teach them self-discipline and how to delay gratification. This comes from the simple repetition of asking themselves, "What do I want to do with my money?" each time they have a dollar.
Studies show that children who learn self-discipline early in life are more positive, self-motivating, persistent in the face of difficulties and able to delay gratification in the pursuit of their goals when they reach adulthood. Conversely, children who do not master self-discipline are more troubled, stubborn and indecisive, and less self-confident in adulthood.
Younger children will understand "money choice" best when they have a "money choice" bank. It can be a piggy bank with four slots, or it can be four jars. The container doesn't matter as much as the fact that there are four separate pots. Label them "Save," "Spend," "Donate" and "Invest." The labels act as a constant reminder for your child to think about what he wants to do with each dollar he has.
Make sure the money container is see-through so your child can watch the coins accumulate. Research shows the excitement of watching coins pile up breeds future savers.
Use only coins and small currency at this stage. If your child receives a dollar, break it down into coins to give her more to work with. If she receives a check from Grandma and Grandpa, give her some cash back so she sees that checks translate into money.
By age 10 or so, children need a more sophisticated approach than four jars. Give them a personal finance organizer that has paper for keeping track of their goals and zippered plastic pockets for keeping their cash. But the same rules apply: Older children still need to be reminded regularly there are four choices for money, the choices need to be labeled, the money needs to be in currency (not credit or debit cards) and it needs to be kept in a see-through container.
For some scary statistics on why teaching kids money choice and delayed gratification is so important, visit me on the Web. You'll also find my question of the month and advice on why it's important to allow your child to make his or her own choices about money.
Susan Beacham is the founder and CEO of Money Savvy Generation, which provides innovative products and services to help parents and educators teach children money management skills. Email her at Susan@MSGen.com.