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Teaching Financial Responsibility: The Early Years (ages 1-4)

Children at this age have started formal schooling, have a higher attention span, and are learning self-control. At the same time, they are learning to be more responsible with chores, behaviors, and schoolwork (see Parenting with Purpose).

For being a “responsible and respectful member of the family,” they are given a modest allowance. This allowance is not payment for doing chores, having good behaviors, or doing well on schoolwork ~ these are expected. The allowance is a benefit of being a responsible, productive, contributing member of the family.

So how is allowance determined?

So the children know what the family expectations are, every week they are given a checklist with expected behaviors, responsibilities & chores, and academic goals that need to be completed. Using checklists makes it very clear to the children what is expected of them and easy for them to see if they have earned privileges.

These checklists are reviewed at the end of the day to see if the children have completed their daily responsibilities and academic goals for the day, and have maintained kind and respectful behaviors – if so, they are given privileges for that day. For us, this was often playdates or screen time.

These checklists are also used for determining allowance. At the end of each week (we did it on Saturday), parents sit down with the children and go over their week including their checklist of expectations. In our home, three categories contributed to being “responsible and respectful members of the family” (and receiving full allowance).

      1. Responsibilities:  Daily responsibilities & weekly chores
      2. Behaviors: Being kind and respectful in all that is said and done, and obeying authority the first time without arguing, whining, or complaining. 
      3. Academics:  Doing best work possible and completing on time.

The loving parent praises all that the children did well that week and gives feedback on what needs to be worked on the next week. After reviewing their checklists, I would often ask my children what part of their allowance they should receive that week. They were amazingly honest in their responses. I would often say they deserved more than they had said ~ being able to tell them this felt so good! Asking them this question helped them develop insight into their own choices and taking ownership of these choices.

What is done with the allowance?
(Intro to Financial Management)

With this modest allowance, the children are introduced to financial management.

Allowance is kept in three (3) separate envelopes:  40% in “save,” 40% in “spend,” and 20% in “give.”  The children are taught this money is managed as follows:

SAVE:   
This money is to be used for the future.  An interest-bearing savings account is set up at a local bank in the children’s name.  Every couple months, the children are taken to the bank to make a deposit of the money in their “save” envelope.  The parents do not do this for them.  The children learn how to make deposits with a bank teller and also enjoy receiving bank statements with their name and interest on their money.

SPEND:
This money can be used for something they enjoy.  At this age, this is usually toys of some sort.  

Children are taught to think before spending money.  The more they want to spend, the longer they need to think before buying – one week was minimum.  

The purpose of waiting before spending was to prevent impulse spending.  The “I have money so need to find something to spend it on” thinking is contrary to responsible financial management.  

The simple parental response to the child’s impulsive “I want…” is to ask “Have you been wanting this for more than a week?”  More often than not, after a week, my children did not want to spend their money on that item.

GIVE:
“Give” money is for gifts, tithing to church, and donating to charitable causes.  Children are encouraged to be generous with their blessings.  

In our home, any money the children received as gifts was equally divided between “spend” and “save.”

For more information about family behavioral expectations, discipline & privileges, and checklists, see Parenting with Purpose.

A few notes:

WHY PAYING FOR CHORES CAN BACKFIRE:

I do not believe in paying children for doing routine chores related to picking up after themselves, doing their own laundry, cleaning or putting away dishes, or cleaning/tidying their room, bathroom, or common areas in the home.

Parents provide their children with food, clothes, shelter, medical care, and all their other needs ~ children contribute to the family by helping to maintain the home and property in which they live.  Parents are not paid for being parents, and children are not paid for being contributing members of the family. 

From a psychological standpoint, paying children to help take care of the home in which they live subconsciously teaches them that they should not have to, for example, keep their room clean or put their dishes away unless they are going to be paid for it. 

However, extra chores or projects beyond those that are routine is a different matter – paying children for work above and beyond is acceptable and encouraged as it allows them an opportunity to earn extra money.  This, in fact, develops work ethic. 

PRORATING ALLOWANCE:

Allowance is a privilege and is not given (or is prorated) for not meeting expectations. 

For example, if the child has not completed schoolwork (or has done poor quality), has been rude and disrespectful, and/or hasn’t done his part in taking care of the house including cleaning up after himself, he would not get his full allowance for the week.  The percent of allowance received was determined by the percent they met expectations for the week.

Surprisingly, my children were usually accurate when asked what portion of their allowance they think they deserved that week.  

NEXT:  Teaching Financial Responsibility: The Preteen Years (ages 10-12)