How To Raise A Happy Genius

Good financial management is one of the most crucial core skills that a child needs to learn to become a happy adult, and indeed, poor financial management skills are probably one of the leading causes of unhappiness in adults in the developed world. You might think that the teaching of good financial management skills is something that can be left until a child reaches their teenage years, but often by then it is too late as they will have already developed many bad financial habits. Instead, teaching children how to be good with money really needs to start as early as possible, and one of the best ways to do this is with a money box. However, there are also a few mistakes you can make that can result in your child learning bad financial lessons rather than good ones, so you need to make sure that you do it properly! So, how, you might ask, can you do this? Well, it’s really quite simple, and it can be outlined in ten relatively easy steps.

Step 1 – Buy An Appropriate Money Box:

The first thing you need to do is buy an appropriate money box. I would always favour one that is either transparent or that has a window of some kind in it. This allows your child to see the money that has been put into it, and this means they can see it building up over time. I would also recommend that, to start off with, you don’t use one that is too big. This is because you want it to fill up relatively quickly, but more about that later. The one I’ve found that I like best is a really nice wooden one with a transparent window in it, and a bit of a fancy mechanism to open it, all of which adds to the pleasure of both putting money into it, and indeed emptying it once it is full (see below). You can find links to suitable money boxes at the end of this article.

Step 2 – Introduce Your Child To Their Money Box And The Concept Of Saving Money For Future Spending:

Once you have your money box, you can start using it. The best time to start doing this is at the time that your child starts to develop an understanding of what money is. This is usually around the age of four or five, but it will vary from child to child. To use it, first introduce the money box to your child by telling them what it is and that they will use it to save up money. Also make it very clear to them right from the start that once it is full, they will be able to spend the money that has been saved in it on whatever they want. This is really important as it makes it clear that there is a direct benefit to them of saving, and it also makes it more fun because they can anticipate spending the money.

Step 3 – Get Your Child To Start Saving Money In It On A Regular Basis:

After you have introduced your child to the money box and how it will work, they need to start filling it up. This is best done on a regular basis and can be done with any change that you have in your pocket. The chances are at aged four, your child will not yet understand that different coins have different values, so the important thing here is quantity and not monetary value (i.e. they will prefer to get five pennies rather than a single, more valuable coin). I would also suggest sticking to coins rather than giving them notes as coins are much easier for them to handle, and understand as they are distinct from anything else in their lives (while paper isn’t).

The next thing you need to decide on is how you will give your child the money to put into their money box. While you can just give your child the money, it is better to do it as some kind of reward for doing something. This is because it helps instill in them the idea that money is not something you get for free, but it is something you get for doing things. So, I would always suggest giving it for things like having a good day at nursery, being well-behaved on a day out, doing well in a game or trying something new for the first time. However, I would advise against withholding money that has previously been promised as punishment if they do something wrong, as this will interfere with the way they will learn to associate saving with future rewards. As a result, any punishments should be kept completely separate from this life lesson in financial management skills.

Each time you give your child some money to put in their money box, remember to tell them why they are getting it (so they understand the link between doing something and getting the money), and then make sure that all the money is put into the money box (rather than being lost down the back of their car seat or other similar places that swallow up dropped items, never to be see again!). You also need to point out to them that the money box is filling up and re-enforce the idea that once it is full, they will get to spend the money in it on whatever they want.

Step 4 – Make Sure That Any Money Put Into The Money Box Stays In The Money Box Until The Savings Goal Has Been Reached (i.e. Until It Is Full):

Whenever the money box is not being used, make sure that it is kept in a safe place so that your child cannot open it and remove any of the money. In addition, it is really important that you don’t dip into the money box or take anything out of it until the savings goal has been reached (i.e. until it is full). It can be very tempting to do this when your child is pestering your for an ice-cream or some other small treat, but it is vital that you never do this as it will give the child the impression that savings can be dipped into at any point, rather than when they have reached their intended saving goal.

This shouldn’t need saying, but I’m going to say it anyway: it is also really important that you do not dip into your child’s money box for any reason what-so-ever (and it can be very tempting when you need some change for the bus, and it’s just sitting there), even if you plan on replacing it later. This is because if your child finds out (and, one way or another, they will find out), it will send a very bad message to them. This is that there is no point in saving money for the future because someone else will just take it away from them before they get to spend it. Once learned, especially at an early age, this is a very hard lesson to unlearn, and it is a learned attitude that is at the heart of many adults’ poor savings habits.

Preventing your child (or you) from dipping into their savings whenever they (or you) want to has another major bonus. This is that it will help develop their delayed gratification skills and this is a really important skill to develop in life.

Step 5 – Once The Money Box Is Full, Count Its Contents And Then Give Your Child The Opportunity To Spend It On Whatever They Want:

Once the money box is almost full, set a specific time and date when the box will be emptied and the child will get to spend the money they have saved. This will enhance the development of their delayed gratification skills because they have to wait for an anticipated future reward. However, this means it is also really important that when you set this time and date, that you stick to it as otherwise the child will not see the fun in saving (and letting a child down in this way, particularly if you do it frequently, will lead to lasting damage to them as again it will teach them that there is no point in delaying gratification by doing things like saving for the future rather than spending money as soon as they get it because the future gratification will, most likely, never come).

When the allotted time arrives, give your child some final money to put into the box, and then empty it. Make this bit as fun as possible. For example, you can empty it onto a flat surface so it makes a lot of noise, with coins flying everywhere, then you and your child can divide the coins up into their different denominations before counting them. Depending on how well-developed your child’s numerical skills are, they can help you count them or you can do it for them. Once you have all the money counted, tell them the total they will have to spend, and remember to praise them for doing so well in saving up so much money (this praise needs to be positive praise for the act of doing the saving, and not for being smart or clever enough to have saved so much). If you wish to top up the amount saved to allow them to purchase more with it, this is the time to do it, and make sure that they understand that it is a reward for the saving they have done (so that they feel they have earned this unexpected bonus).

Now that your child knows how much they have to spend, ask them what they want to spend it on. This will probably be on a toy of some description, but if it is something else, remember that it is up to the child to decide on this. There will be a temptation to try to steer them in a specific direction, but resist this temptation: the decision of what to spend their money on is up to them (after all, it is their money!), even if you think they are wasting it. If they want to buy a book rather than a toy, let them. If they want to give it all to a busker or to charity, that is up to them. This is important because they have to feel in control of the outcome of saving otherwise they will see saving as something that means they lose control of their money, and this will encourage them not to save in the first place. In addition, if they make a poor decision and buy something that turns out to be no good, or they later come across something they’d have preferred instead, they need to learn the lesson that once money is spent, it is gone and cannot be spent again. This is a hard lesson to learn, but it is best learned early, and when it doesn’t cost them, or you, too much money!

Step 6 – Do Not Mix Your Money And Your Child’s Savings:

You need to make sure that your child understands the link between saving money now and spending it later on something they want. This means that you shouldn’t be tempted to simply put the saved money into your own change jar, and then spend it via your credit or debit card, or with notes from your own wallet. Instead, it is important that your child is the one handing the money over in the shop (even at the age of four or five). You can, however, change the coins into larger denominations, or into notes, but make sure that they see this happening and that they understand exactly what is going on. If you wish to hold onto the money for them until they reach their chosen destination (and this is probably a good idea as it stops it getting lost), the simplest way to do this is to buy them their own wallet or purse, and place the money in it. This can then go into your pocket or bag, but it will always be clearly separated for your own money so that they understand what is theirs to spend, and what is yours. This also allows them to keep some money aside for spending at a different time, if they so choose.

Step 7 – Make Sure That Your Child Only Spends The Total Amount Saved:

When it comes to spending the saved money, your child must be made to stick to the total that they have saved up, so that they start developing the habitat of working to a budget (a really critical skill for later life). This means that one of the worst things you can do is supplement their saved money if they announce that they wish to spend it on something that costs more than the total they have saved up, so on no account should you do this, no matter how tempting it is, or how much your child begs! If you wish to top up the amount saved, the time to do this is when you were counting it up (see above), not at the time it is being spent. Alternatively, you can tell them that if they want to buy something more expensive, they can roll the money over until their money box is full again, and they will then have twice as much to spend.

Step 8 – When Spending The Saved Money, Make Sure Your Child Is The Sole Focus Of Your Attention (Time Spent With You Is Part Of The Reward For Having Achieved Their Saving Goal):

If you have more than one child, then it is important that they each have their own money box, and that when it comes to spending their savings, that you take each child out separately. This is because part of the reward for saving is to spend time with you one-on-one where they are the entire and sole focus of your attention. In respect to this, it is also important that during the spending trip, you turn off your mobile phone so that you are not constantly distracted and so that you can give them your undivided attention. Yes, it might be frustrating to wait around while they try to decide which toy they wish to purchase, but they will get a lot more out of it if you’re focused on them and not constantly distracted by what is going on on your phone. This will also allow you to help them decide what to buy, if they choose to ask you, and to also help them work out whether they can afford everything they want.

Step 9 – Let Your Child’s Saving Behaviour Develop As They Grow Older:

As your child grows older, then you can build on this saving foundation. You can change when they get their money to once a week (i.e. start giving them regular pocket money), and start introducing the idea that they get given money for doing chores around the house, or trying hard at school (and it should be given for trying hard, and not necessarily doing well). You can also start getting them to count the money themselves (helping them to develop their practical numeracy skills), and to set savings targets that are specific values rather than just when the money box is full. Similarly, you can introduce the idea of saving up for specific things, such as a day out, spending money for a family holiday or a desired toy. All of these will help them develop a positive attitude to saving, and instill a good understanding of the importance of saving in them. Finally, when it comes to giving them pocket money, you can introduce them to the idea of working out how much they need to put aside to save for a specific purpose in a specific period of time, and how much they can spend now without missing their intended savings goal.

Step 10 – Introduce Your Child To The Concept Of Using A Bank Account For Saving In The Long Term:

It is also an idea to introduce the concept of using bank accounts to save money for the long-term relatively early on. The best way to do this is after they have been saving in the money box for a while. At this point, you can start taking a portion of the money saved and putting it into a savings account. However, don’t simply take the money into the bank yourself when you have a free moment. Instead, your child needs to see the whole process, so make them part of opening the savings account, and depositing the money in it each and every time so they understand every step involved and what exactly is happening to their money. This is easy enough to do as part of the trip to spend the saved money, so you first visit the bank to put some money in their savings account, and then spend the rest. However, make sure that you make it clear to them when they will get to spend the money as the idea here is to get them into the habit of saving across multiple time scales at the same time. So, for example, you might tell them that the money they are putting in their savings account is for spending money for an upcoming holiday or day out, while the rest of their saved money can be spent that day. This is also a good time to explain the concept of interest and how it will increase the amount of money they will have to spend, and that the longer it is left in the bank, the more ‘free’ money they will get in return. This will give you a basis for later explaining important concepts like compound interest and how it works on savings, and even more importantly, how it works to trap people in debt.

While it is easy to start this process of using a money box to help teach your child good financial management skills, it can take quite a bit of effort to keep it going, and to keep doing it consistently. However, it is really important that you do it consistently following the above rules so that it becomes a regular part of your child’s life. This will ensure that the act of saving, and spending to a budget, becomes a core skill in their overall skill set and that it is a habit that they will hopefully continue into their adult life.

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About The Author: This post was written by Colin Drysdale, the creator of How To Raise A Happy Genius.

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