Heather’s post about the way we deal with debt influencing & shaping our children’s perception of money, got me thinking.

I have a 3 year old daughter, and she’s starting to become financially aware. As an example, only a couple of days ago she was playing with my wallet (as she is wont to do) and pulled out a five-pound note, and said:

“Hmm, I don’t have one of those. I need to put this in my boot-bank…”

I was just pleased it wasn’t a twenty! But what is the right response? How to deal with situations like this?

She has her own purse (and many handbags!) and 2 boot-banks that were given to her. Occasionally, when we run errands in town, she will tell us earnestly that she needs to take her purse to buy something. And she does. Usually something extravagant like soap bubbles or a new set of stickers…

Conversely, you should see the look of pure delight when she gets given some money and the chance to run upstairs and stand on tip-toes on the chair in her room and drop the coins into her piggy-banks. One is now full.

Which brings me to the question:

“Should a child be allowed to spend the whole dollar?”

Here is a very approximate paraphrase from Jim Rohn – a great speaker I heard a few years ago. He was challenging the audience to think about money and influence… my apologies to Jim for any inaccuracies, this is how I remember his words:

“If you give a kid a dollar – should you let them spend the whole thing?

…only if you want them to grow up poor!

Hey, if you want to teach your kid good financial habits, don’t let them spend the whole dollar. Teach them about savings. Let them see the value in compound interest.

If you want to give your child a good education – take them across town to where the poor people live who spend the whole dollar…

If you already live there… well, just show them around!“

Let’s leave the idea for a moment, that in reality, ‘poor’ people are all around us. People who not only spend the whole dollar – they spend more than the whole dollar, because credit extends to them that ability. They might not seem poor. They might actually have fairly lavish lifestyles… all hocked on credit and the promise of paying it back.

I digress.

How soon should you start teaching your child about finances? How soon should you start learning good habits yourself, so you can teach your child more effectively? When is too young to start learning this stuff? When can you start teaching your kids about entrepreneurship – the ability to make money in a fast-changing world, to give them more options than just ‘getting a job’…

My daughter understand that it feels good to save money and to spend money. I think that’s healthy. Let’s hope I can help her feel equally good about making money as well as giving money.

I’ll leave you with a few more words from Jim Rohn:

“Get your kids 2 bikes. One to ride and one to rent!”

This post appears in the carnival of education on April 9th.

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