In my book, Oxen, I share about two different ways to produce income:

1. Type 1 is “Work = Get Paid” || Don’t Work = Don’t Get Paid”
2. Type 2 is “Get paid whether or not you are working”

These two types of income production are also commonly referred to as “Aggressive” (Type 1) and “Passive” (Type 2) streams of income.

While we all aspire to receive as much income as possible from Type 2 sources, most people start their financial journey with only Type 1 income at their disposal. I recommend teaching children this principle as soon as possible so they do not get afflicted with “magic money tree syndrome” where they believe money just magically appears upon command.

You can do this even when a child is 3 or 4 years old by instituting a “chore chart.” This is a chart where you can assign specific tasks to the child, and they can receive payment upon successful completion. Basic tasks can be assigned at this age including emptying little trash cans into the big trash can, feeding the cat or puppy, and cleaning their room. All of these tasks will, of course, require parental “assistance” at this age, but you are incentivizing appropriate behavior and teaching the Type 1 Income principle!

Conduct a weekly review of the chart with the child. Have them “self-grade” their performance with each chore. Make payments accordingly.

Key Points To Consider:

• Consider having a picture of their next desired purchase posted next to the chore chart to help keep the child focused on “why” they are doing this.
• I really like chore charts that also include “fines” for obstinate and ridiculous behavior (like throwing themselves onto the floor in a tantrum or open and outrageous disobedience).

Key steps to implement your chore chart:

1. Establish age appropriate chores
2. Assign a monetary value for each chore
3. Have the child “self-grade” performance each week
4. Have the child “self-grade” regarding “fines” that should be administered
5. Make payments accordingly

You will see your children learn how great it is to work and be productive and that good financial things can happen as a result!

Dave Ramsey’s Financial Peace, Jr. is a terrific resource that includes a dry-erase chore cart and even includes envelopes for giving, saving, and spending! We’ve used this to help our children learn these principles. HERE IS AN AMAZON.COM LINK to that resource.

NOTE: This post was written as part of the “Kids & Money” series here at the wildly popular JosephSangl.com! Click HERE to access all of the tips in this series.

We tend to make investing more difficult than it really is. The goal of any investment is to make money.

Here’s a simple way to teach investing to a 3 year old.

1. Select their favorite cereal
2. Ask them, “Do you like this cereal?”
3. Desired Response: “Yes!”
4. Then ask, “Do you think other little boys and girls like this cereal?”
5. Desired Response: “Yes!”
6. Do you think there will be MORE little boys and girls in the future or LESS?
7. Desired Response: “MORE!”
8. Then maybe we should own part of the company that makes this cereal. Would you like to own part of the cereal company?
9. Desired Response: “Yes!”
10. Purchase stock (using your favorite stock trading company) – Maybe General Mills (GIS) or Post Holdings (NYSE: POST)
11. Better yet, purchase a mutual fund that owns cereal companies within it

I’ve done this with my daughter when she was 3. I’ve continued the conversation. As a teenager, she is an informed investor who I’m proud to say is becoming a financially confident leader.

Every parent wants their child to thrive in life – relationally, spiritually, physically, and financially! We want them to make a difference!

New parents would never say, “I really hope my child experiences tremendous financial hardship and maybe even bankruptcy.”

Yet many newborns grow into adults who experience tremendous financial hardship and, yes, even bankruptcy!

So what can a parent do to help their child thrive financially?

• Give them money to start life out with?
• Pay for their entire college education?
• Buy them the latest and greatest technology?

All of these things can help a child grow up into a financially-savvy adult, but I believe there is one key factor that dominates all others when it comes to ensuring a child is equipped to win with money.

One Key Factor:  The parents live it themselves!

When parents model strong foundational financial principles for their children, it is the strongest form of teaching one can ever deliver!

Children learn most by imitating their parents! Think about it: If you are being silly and stick french fries up your nose at McDonald’s – your children will do it too. If you slam doors when you are angry, don’t be surprised when your child does it too!

So let’s get to some practical thoughts on this:

1. You want your child to learn to save? Save money every single time you are paid. Take your child to the bank (even though it might not be as convenient as using the Internet or an app) and deposit the money. When your child receives money as a gift, challenge them to save some of the money into a piggy bank or clear jar – so they can visually see it accumulate.
2. You want your child to be generous? Give money away every single time you are paid. Better yet, put the money in your children’s hands and have them donate it for you. Donate time at a great charity in your town and serve those who are less fortunate. Again, when your child receives money as a gift, challenge them to give some of that money away.
3. You want your child to invest? Invest money ever single time you are paid – even if it is just a few dollars. Show retirement plan quarterly statements to your children.
4. You want your child to budget? Prepare and live by a written budget that you prepare before each month begins! When your child receives any money, help them develop a written plan for each dollar they have received. Show them the power of “giving every dollar a name.”

I know some parents might ask, “When is the right time to share financial information with my child?”

It’s a great question. I’ve chosen to veer towards teaching them even when it makes their eyes twirl – and then I back down because I don’t want them to associate finances with feeling miserable.

Here’s a good general guide:

• Age 1 to 2  Let them hold money they have been given. Let them help you put it into the piggy bank you have created. Use money as a basic counting exercise.
• Ages 3 to 4  Let them cut a small item they want to purchase from a store ad. Help them pay for it with money they have saved. This is also a good time to begin a “chore chart” where they can learn the great “work = get paid; don’t work = don’t get paid” principle!
• Ages 5 – 6  Expand the chore chart to include more detailed tasks. You can begin showing college savings accounts and investments at this age – just from a demonstration of “what Mommy & Daddy do” I even began bringing my daughter to meet with my financial adviser at this age. I just wanted her to “connect the dots” that her parents seek wisdom from others (this is a very important principle!)
• Ages 7 – 8  Take your child to the bank and open a basic savings account for them. Teach budgeting basics (Income – Outgo = Exactly Zero; Give|Save|Spend; Spend less than you make; Save money for a rainy day) and require them to plan any money they receive. Let them deposit the money at the bank.
• Ages 9 – 12  Continue to increase the chore chart. Begin explaining how mutual funds and stocks work. I chose to teach my daughter about mutual funds using companies she was familiar with (the company that makes her favorite cereal).
• Ages 13 – 18  It is at this state that you can begin a “monthly allowance” that allows you to transfer financial responsibility to your child. This allowance can begin with requiring them to pay for their own school lunch and then increase it to responsibility for all of their clothing, food, and entertainment. The principal is simple: Require a budget before the allowance is distributed. Distribute the money. Conduct a review at the end of each month. Have a “lessons learned” conversation and then start over again the next month. Take your child with you to meet with an investing adviser.

What would you add to this list? What questions do you have?