QTT: Teach Your Children About Money Early - A Must Read!

About a year ago I was listening to Dave Ramsey and he was explaining the importance of teaching your children at an early age the financial principles of life. Dave Ramsey spoke of a pay per performance chart (commission chart) and paying your child by using the three envelope system.

Dave Ramsey who wrote the book “The Total Money Makeover”, among others, suggests that you set up three different envelopes of three categories for the money. He suggests to set up envelopes to for your child to save his or her money, have fun with it, and give it.

The three envelopes:

The saving money envelope will teach your child the value of saving money at a young age. Again, you could set up a savings account for this or maybe even a mutual fund in your name but invest their money to show them how compound interest works, but otherwise, the fact that they are accumulating a pile of cash will teach them the value of savings just fine.

The spending envelope shows them that its okay to have a little fun with your money and blow your money every now and then. It helps them develop a balance between being diligent with their finances, but also letting loose a little bit and having fun with their hard-earned money.

The giving envelope helps your child know the importance of being generous with his or her money. This is probably the most important envelope, because money greed can destroy relationships and ruin lives later on in life. If you can teach your child to be generous now, then he or she will live a much more fulfilling life. He or she will experience the true joy of giving at a young age.

As a side note, I've had the chance to do this with my 5 year old niece for about 6 months now. I gave her a calendar and a commission chart and had her help me decorate the envelopes. She keeps track of when her Friday pay day comes along on her calendar and I giver her the envelopes with the money. I give her $5 dollars a week. $2 dollars goes into savings, $2 dollars she can spend, and $1 dollar she has to give away to a charity or when we are at church, etc.

Bottom line: This system works! I highly recommend it for children.