_{»crosslinked«}

One of the best things we did this year was to encourage him to keep track of all he’s earned. He’s been amazed to see how fast it adds up. He’s getting close to achieving his goal of being able to buy an iPod Touch.

Increase responsibility and complexity as they mature. You also want to create consequences as well incorporate your “needs/wants” discussion with it. You want candy at the store? You have your own money. You want the latest toy for $10, save up for it. My children got an allowance at a young age (6) and they did simple chores.
Mine are now teenagers. They get $10 a week, $5 is put in a custodial account (ie. savings which they can use for big purchases – such as a $300 electric guitar) and $5 they get to spend how they want. All money they get from gifts are split 50/50 (custodial, their own account). With this money, they have to buy all presents, any movie nights w/ friends, any trips to Six Flags, anything else that is not a family expenditure (ie. I go with them and say I pay) comes out of their money. If they don’t have enough from their slush fund, they have to justify to me why they have to dip into savings. This creates awesome discussions and shows them how to save.

You also want to instill into them a sense of financial independence. I have given them an ATM card (not debit, just ATM) which they have access to their money at 13. They cannot get access to the custodial account, just their own savings account. We live a mile from the bank and they can ride their bike to the ATM if they need money. They have to manage minimum balances, deal with interest, etc. They cannot cause any harm to you, and only minimum harm to themselves.

Create contracts. This explains expectations for them and you as the parent (since part of it is what you will do). You can show them how this works in the business world. My first contract with my son when he was 6 was simple. Clean up your toys every day before you go to bed, you get $1 a week, you miss a day, no allowance for the week. As he got older, more chores were added, and the next child was added to the list when they got old enough. They had to negotiate their lunch money (for extras), negotiate allowance, when was pay day, etc. We now have 3 page contracts each child signs each school year about expectations (driving time, chores, allowance, school expectations, work hours, bed times, etc.). This means the usual teenage fighting (negotiations) occur once, and then there is only the exceptions to the contract, however they signed the contract for certain things so they help in the family economy.

As for college accounts, I have each child have an account, which they know the balance and watch the investments grow. I pay the taxes for them (as well as insurance if they keep a 3.0 and no accidents). It also shows them about diversification, fees, etc. They know this is all I will contribute to their college and they have to find the rest. If they go to a state school they will have just enough for 4 years. Go to a CC and live at home, they will have left overs. None of them are going out of state or to an Ivy League so it is not a big worry. If they work (I did) then that is fine and that is beer/food money. Work 15 hours a week and you can get enough for food and beer while in school.