To help children decide how much should go into spending and how much into saving, you can help them figure out how much they’ll need for regular weekly expenses, such as lunch money or whatever else you agree on. You might suggest keeping careful track of a week’s worth of spending and use that amount as a starting point. Part of the conversation should focus on the fact that budgeting always involves making adjustments. The goal isn’t to get it right the first time, but to come up with a workable allocation of money.
Next, talk about money for short-term savings goals. Children’s goals vary substantially, based on their age and concept of time, but might include toys, sports equipment, electronic devices, special clothes, or other big-ticket items. You may want to suggest saving for one item at a time and help them figure out how much they’ll need to save each week to reach their goal in a realistic amount of time. But you’ll probably want to let them discover for themselves that not all goals are worth the time and effort it takes to reach them.
Finally, be sure to encourage them to set aside a regular percentage for some long-term goal, however vaguely defined. For some children, saving for college means a lot. For others, the goal may be more tangible, like a car. Here, too, 10% of the total might be a reasonable percentage to save. As an incentive to put money into long-term savings, you might consider making a matching contribution by adding 50 cents or a dollar for every dollar your child puts in.
You may want to use common stocks to introduce your children to investing. Stocks are easy to explain and can be fun to track, especially if you start with companies that make products your children hold in high regard, like their favorite cereal, sports equipment, soft drink, or digital products. Once you show them how to track performance by going to the company website, or to general financial sites where they can find news stories about the company, it should be easy to get them involved.
There are several ways to make investing come alive. One is to set up a hypothetical family account, either online or on paper, and track the ups and downs of the portfolio you choose together. Another is to “sell” each child some of your own shares. For example, if you’re planning to buy 200 shares of a particular company and you have two children, buy 202 and sell the extra shares to them at the price you paid.
You can keep track of the children’s shares in a separate register so they can follow what happens to their shares. (You should probably be willing to buy the shares back if they prove disappointing.