Quick Cash Jar

The second jar is Quick Cash. Count out 30% of your child’s allowance. For young ones, this is a great “counting lesson”! The child has worked hard for their money and deserves
some instant gratification.

This is the jar or pouch that the money can be taken out of at any time to spend on whatever the child wants. When it's gone, it's gone and there won't be any more until next week. The rules here are that you can't criticize what the child spends their own money on.

It's theirs and they earned it. You can have family rules, of course. You set the overall parameters: if it's no sugar, no chocolate, no automatic weapons, then, so be it, those are your rules. But beyond that they are on their own.

This is an absolute hands-off rule. It's one of the hardest for a parent to adhere to, and it's one of the most important. It is the bedrock foundation of teaching your child the first lesson of empowerment, self-confidence, and responsibility for their own choices. "Money" is about choices, and learning the consequences of those choices.

By the way, haven't you ever bought anything that "Olympic Buying Judges" might consider a "stupid purchase"? I get all "10's" (even from the U.S. and former Soviet judges) on the attractive multicolor serape I bought in Mexico. I'm still waiting for "Serape Day" at work, and not to worry, I'll be prepared. (Halloween’s coming up- convince your child to wear the serape- good luck!)

The point is, we've all learned from our poorly thought out purchases and we don’t want any "Olympic Buying Judges" telling us what a smart or dumb purchase is. If your child wants to spend their hard-earned dollars on what you consider a worthless piece of junk, you have to let them. If it breaks in five minutes after they bought it.... Well, it's not the last dollar they'll ever make.

Making a foolish purchase with a dollar of their own will reinforce the lessons for your child even more strongly. You're undermining the whole process if you step in and prevent them from making their own mistakes - and you're undermining it just as much if you step in and buy something new after the junky toy breaks. (Grandma, are you listening?)

Medium-Term Savings Jar

The third jar is for Medium-Term Savings. Another 30% goes into this jar or pouch. This is the jar in which your child saves money for a larger purchase than they can buy with the Quick Cash.

This is a real learning process for your little ones. Saving is not going to be a natural instinct for them. Deferred gratification is not one of life's pleasures that they'll arrive at without guidance. But it remains one of the most important life skills - a cornerstone for character building that's necessary to any teaching of values.

The Medium-Term Savings Jar is dedicated to buying something that your child really wants and that is within his ability - in terms of earning power and willpower - to save for and wait for.

In the case of a 3-year-old, entering the glorious experience of their first savings venture means a very short exercise in pushing off instant gratification.

Two weeks is about right.

Here, you'll need to give some guidance to your toddler. Go to the store with them, and talk about what you can buy if you save for two weeks. How much money will you have? What can you buy for $2? Make sure they understand they can't buy the 5-foot stuffed Big Bird. But they can buy the Big Bird stickers.

Together, pick out something that represents a realistic goal. Either draw a picture or cut out a picture of it to remind your child what it is they are saving for.

I remember bringing my daughter, Kyle, into the store to visit My Little Pony, "Just stay here for one more week," she'd coo, "then you're going to come home with me."

By doing this, you keep your child's interest up, and maybe they’ll even remember why they are saving their money. As soon as the child has saved and bought a couple of things, they’ll be much more involved. In about a year your child should be a skilled saver and able to defer gratification for 4 or 5 weeks or more.

You can help incent your children to save for what they want – a bike, or roller blades, or iPod – without forcing them to wait until their 42nd birthday to achieve the goal. If your youngster is saving for a large purchase, set up the “401(k) Matching Plan.” Explain that for every dollar they save, you will match it with a dollar.

Next: Long-Term Savings Jar