We teach a variety of different ways. Here's what I wrote in another thread:
Older child, but we have an open budget in our home. That means it's usually up on the computer for any of us to look at, the savings book is kept in easy access...each payday both are trotted out and worked on in plain view. Sometimes The Kid will ask questions, sometimes not, but I don't want to hide something from him that he really is a part of.
We try to model the habits we want him to have. I bought him a Money Savvy Pig a few years ago with spaces for Spend, Save, Invest, and Donate, but when he turned 10 we moved to The Bank Of Mom And Dad - glass jars that are kept in our room for all but the Save, with interest given each month. Our savings book is a smaller version of his, but with more categories to reflect our family's needs. And that's all open information.
We make sure to NEVER say 'we can't afford it'. That is a lie on many levels. We CAN afford to go on a crazy toy spree, if we choose not to eat that month. We CAN afford to get all sorts of junk food, if we choose not to pay the insurance bill.
It's all choices, and we want to make sure that The Kid sees money management in a positive way.
"We can't afford it" is negative and makes it difficult to stay focused on our real goals. It's a state that we have no control over. It's depressing and makes us feel poor.
"We choose to spend our money this way" is positive and puts us in control. It's OUR choice! We're CHOOSING to save our money for a house of our own, to invest our money in a 401K, to spend it on homeschooling supplies and one fun outing each month. These are important to our family and our choices reflect that.
The Kid gets to make those choices, too, in our home. With his allowance, he can choose to blow it on junk food and fun stuff or buy the thing he needs. It's important to give him that freedom so that he can develop his own money skills, not 'doing it because we say so.' We set down few guidelines for his money :
1. *Some* of his allowance needs to go in each category. That some is the same rule we adults have; I don't have to put 10% in savings or 20% here or there, *I* decide how much to put based on my needs.
2. Money taken out of savings has two rules - there must be more than a week's worth and it must be for something big. Going to the school carnival is not something to take savings money, that is spend money. A video game he's been actively working for? That's save money.
I think it takes away the point of teaching money management if it gets more complicated than that. The message we end up sending is manage your money the way I want you to. All great and good for raising a child, but not if you're expecting that child to grow up, get their own wings, and become independent. They need the time to make stupid decisions, to see their savings grow quickly or slowly, to start having to balance their needs and wants BEFORE they're adults and stupid decisions land them in bankruptcy court.
And we do give allowance, yes. I think part of money management is security in knowing you have an income. Otherwise the pattern tends to become SPEND a lot, then hoard a little until the next lucky break. For several years it was not tied into anything because we focused on money management only, but currently we have it tied into responsibility and initiative. The Kid and I have a contract - all chores done on his own are paid for, the ones I have to tell him to do (because there's no getting out of chores here) are not paid for. As we get more into the teen years we'll most likely drop that (because the money needs will be greater) and the portion in our budget set aside for him will be dropped into his bank account, leaving him to pay for his classes, his clothes, and his fun stuff so he can have more real world budgeting practice.
Different ages, different needs, but all focused on the same goal - teaching him to not only be self sufficient but smart with his money.
