When do you start teaching a child about money? As soon as they understand that they can use the money to buy the things they want. When they show some interest, you can start teaching them how to handle it wisely. The simple lessons you teach today will give your child a good base in financial literacy. Let’s start with lessons for the youngest children who are ready.

Lesson 1: Explain our monetary system

Very young children logically believe that metal is better than paper and more paper is better than less paper. Thus, they might think that a 10 peso coin is better than a P20 bill and that three P20 bills are better than one P100 bill. It would be good to practice their understanding as a game. It will be very interesting to them especially if there is a small simple prize for the winner.

Lesson 2: Give your child an allowance

An allowance gives your child the first idea about finance. With the allowance money, your child can begin saving and budgeting for the things he/she wants.

The amount you give depends on your budget. However, if your budget is unlimited, be sure you give an amount that is reasonable for his/her age and not too much. In fact, it seems that children who receive too much allowance end up being spoiled. In our case, we gave an amount based on the grade level of our children. I am told that more parents give an amount based on the age of the child, which sounds more logical, on hindsight.

Some parents pay extra money to their children to do special chores around the house. This is also a good idea provided these are chores that are not normally expected of children. For example, children are expected to fix at least their beds and their personal things so they should not be paid to do this. If you decide to pay for chores, try to estimate the amount that your child will be getting in one week with both the chores and the allowance.

To come up with the right amount, decide what your child has to pay out of his/her own money and add at least another 20 per cent that will go into savings.

For example, if you think that your 3-year-old child can handle an allowance of P30 per week (based on an arbitrary P10 per week per year of age), you could give the whole P30 outright or you could give only P15 per week (P5 per week per year of age) and offer chores that he/she can do daily at say P5 per chore. If the child does the chore daily, he/she could get P55 per week.

With the start of school, some parents may choose to reward good studying habits and/or good grades with money. There are different thoughts to whether this is good or bad. Each parent knows what is best for his/her child. You can adjust your budget accordingly if you include this parameter.

When you have decided on the amount to give and the way you want your child to get it, you have to do the following:

1) Sit down with your child

o Explain how he will get the money (allowance and chores)
o How you expect him/her to use the money
o How at least 20 per cent should go into savings that he/she cannot touch because you will invest it together to make it grow.
o If your child already understands written numbers, it is best to put everything in writing
o Agree on the date you will review with him/her what happened. Encircle the pertinent dates in his room calendar so he/she knows when each event happens.

2) Give your child his/her allowance and payment for chores on the same day each week.

3) If you can afford it, you may want to give a prize such as money bonus to reward your child for handling his/her allowance well. An agreement in writing from the start will certainly help the child understand his/her success or failure.

4) Be sure to follow your calendar of events strictly but at the same time, don’t make a big issue of it. Make it a fun learning process. Your child might either become a miser or too scared if you overdo it either way.


Lesson 3: Start with a Piggy bank

Choose a piggy bank that makes it exciting to save. There are so many gimmicks in this area available in toy stores. Keep the piggy bank in an area where your child can see it but cannot play with it to prevent accidental losses. At the same time, it is good that you have an idea of how much has already been deposited in the piggy bank. When the amount reaches an amount, say P1,000 you can make an event of opening it and counting the money with a lot of fanfare.

Lesson 4: Open a bank account

If your child knows how to count and add, you can actually, bring him/her to the bank to open an account. This may be the right time to let him/her know that his/her Ninong or Ninang or some relative gave him/her some money as a baptism gift. Let him/her learn how savings accounts work, and he/she will enjoy trips to the bank to make deposits.

Choose a bank that has programs providing activities and incentives designed to help children learn financial basics. Here are some ways to give more savings tips to your child.

1) Show him how the interest compounds by explaining the “free money” that goes into the account.
2) If you can afford it, offer to match the interest that he/she earns every month.
3) If your child has a special want that can be covered by his/her savings, withdraw the amount from the account before actually buying it. This way he/she knows that the money is there anytime he/she wants it. Make sure though that he/she realizes the reduction in interest and savings because of that withdrawal.
4) Withdraw some money every month to give to charity to teach your child the value of sharing. Explain that in this situation, the loss of interest income is not important because of the help he/she is giving.

Lesson 5: Set some targets

It is very difficult for children to set targets especially for savings. This is particularly true for families who are obviously not wanting for money. There should still be budgets made whether you need it or not if you want to teach your child the value of saving. You need not show your child the entire budget, just show him/her the limits of what you can spend for his/her needs and wants, Explain to him/her that the other amounts will have to come from his/her savings.

When your child receives money gifts, you want him/her to save it, but he/she would rather spend it. Here are some suggestions:

1) Discuss with your child what he/she wants to do with the money and give suggestions always including the benefit of savings for the future. But the final decision should be truly acceptable to him/her.

2) Show how he/she can divide up the money gift for different purposes. Always include a small amount for charity and a small amount to spend right away depending on your child’s personality.

3) Agree on his/her targets to be saved each day, week or month to reach the target/s. This is a good time to teach your older child the difference between short-term and long-term goals. However, you should not expect your young child to set long-term goals.
4) Have a picture of the item that your child wants in his/her target chart or on his/her piggybank. Clearly show how long it will take to reach the target based on the agreed daily, or weekly or monthly savings.

5) If your child does not reach his goal, don’t lose hope. Just keep trying. Children are very smart. Even when you think they are not listening or absorbing anything, they are. You will just be surprised one day that your child has learned to become a disciplined saver.

Lesson 6: Children have to learn from example

There are temptations everywhere…advertisements, pressure from friends, offers in malls/playgrounds. Our children are constantly tempted to spend money but unfortunately, they do not have any ability to know how to spend wisely. Your child is completely dependent on you to make good buying decisions.

Of course, unfortunately, there are parents who themselves do not know how to save and/or are not wise spenders. If you are this type of parent, it would be best if you first learn to save by reading my two books and workbook, “Wealth Within Your Reach”, “Making Your Money Work” and Pera Palaguin Workbook” before attempting to teach your child.

Here are ways to help your child more conscious of saving/spending:

1) Try not to make a habit of going malling/shopping as a weekend past time. This just opens your child to more temptation. Try to make it just as exciting to stay at home to play games, go to the park, swim, etc.

2) If possible, set only one day a month for malling/shopping with your child. Make sure you always include the bookstore for this event. Have your child plan for this event a week before the event. Hopefully, you can encourage your child to keep within the budget and to save up for something h/she really wants rather than buy something on impulse.

3) Many times, a child becomes very insistent on buying something not wise or unplanned for. You must learn to say no. Warn him/her beforehand that he/she will not get what he/she wants each time. Also, going shopping/malling does not mean that he/she has to buy something.

4) If your child really wants an item that he/she cannot afford, let him/her try it on and put it on a wish list for gifts that you can ask your friends/relatives to give for special occasions.

5) Make it fun to compare items based on price and quality. Teach him/her how to find the prices of items. Show him/her how you decide to buy one brand over the other.

6) Don’t always demand perfection from your child. If he/she insists on buying something that you know will break quickly or is not like what it says in the advertisement, let him learn his lesson.

Finally, keep this entire exercise light. It sounds so scary because it is condensed in a few pages. It will be even more difficult for your child if you are uptight. Remember, you have many years to do all these. Lighten up! Both you and your child will be happy with this shared experience.