Those of you who know me well know that I tend to have fairly strong feelings about money, investing, debt, and all other finance-related subjects. Misconceptions abound but I think on the whole, “financially conservative” would be a fair label that encompasses my approach (at least from my perspective…).

So, naturally, the topics of money, Caleb, and financial responsibility have come up many times between Megan and I since Caleb came into our lives — indeed, even as far back as during the pre-ultrasound days. Thankfully, and perhaps miraculously (per the track record of most couples), Megan and I are basically on the same page about how to introduce money and responsibility into Caleb’s life. We’ve discussed many times the various options from an allowance, money for chores, no money at all (he would only get what he earns), money for specific needs, and many other options.

I don’t think we have yet firmly determined what option or combination of options we prefer to try with Caleb, but we have come to an agreement that financial intelligence, responsibility and education are extremely important. And, for better or worse, the sooner the better…

Without going on too much of a rant, it amazes me how little financial education most kids receive. Why is it that saving is a foreign concept to most 20-year olds, and most people consider it healthy to use a credit card as a convenient mechanism for, “buy it now, pay for it later?” What about investing? Saving for retirement? The notion of compound interest? Opportunity cost? Return on investment? Risk levels and what investment options are accordingly appropriate? Bonds? And on, and on, and on…

For as long as I can remember, I’ve been actively involving Caleb in our regular daily “commerce” whether that involves purchasing food at a grocery store, or consolidating loose change. There are still many subjects that are far too detailed to broach at the moment (for instance, how many people really know the true definition of money? Hint: It’s not just the currency you might put in your wallet…), but there are also a fair number that can and should be taught, practiced, stressed, and explored at his age (just shy of 3 years old).

The first is the concept of buying things. If you think about “goods” from the perspective of a 2-year old, why wouldn’t the refrigerator magically always be stocked with food? Absent exposure to the reality of shopping for food, paying for it, and restocking the shelves of the refrigerator, a 2-year old has little reason to believe otherwise. Accordingly, the exercise of shopping (selecting a store, picking out goods, and then exchanging “money” for those goods) is an excellent first step. Things do not just appear — we have to find resources, select them, and exchange something of value to take them into our posession.

Caleb is regularly by my side picking out groceries and paying for them (I more or less always let him hand over the cash or a credit card [yes, we use credit cards, and heavily, but never carry a balance. If the interest is there, sometime I'll broach the subject of arbitrage, credit, healthy leveraging of "float," and how credit cards and other short-term debt instruments are actually phenomenal tools for those with their eyes open and finances in order.]). When we are missing something at home, apple juice, for instance, Caleb will declare that we need to go to the store and buy some more. Excellent — lesson 1 accomplished.

But now we have to deal with the more abstract concepts: what is money, where does it come from, how do we obtain it, what happens when it runs out, and what is its value? Sweet. Those are some pretty meaty concepts for a 2-year old (and again, at least from my perspective, evidently most 20-year olds).

The other night Caleb started talking about sharing with his friends “Mommy and Daddy’s money.” While this is a fairly innocent extension of the concept of sharing possessions with friends, I saw it as an excellent opportunity to start imbuing on Caleb the differences between “money” and toys, and why sharing the former is a bit more multi-layered than sharing the latter.

He and I had a short conversation about how Mommy and Daddy’s money was not for him to share and that it came into our possession as a result of the two of us working and earning wages and that we use it to pay for our house, our food, and a few other concrete items. He seemed to be staying with me so I told him that if he wanted to share money with his friends that he would have to earn his own, and to do so he would have to do a job of some kind. (Here’s where methodology, intent, teaching styles and so many other factors get muddled. Just bear with me — I know this is not the perfect approach though I will say that based on how Caleb internalizes things, I think it is absolutely the right approach for him.)

He seemed to quickly grasp the concept that if he wanted his own money he would have to earn it through some type of job. He did at one point suggest that he could borrow our money and I quickly squashed that idea with a very firm, “Mommy and Daddy do not borrow money Caleb, we only buy things if we have enough money and always try and save as much money as possible.” (Truthfully, we do borrow for specific items but are again very conservative about debt. We’ll only borrow for things like an education or a home, and always with the goal of obtaining the best rate and paying off the debt as quickly as possible. And technically, using a credit card, even when you never carry a balance, is also “borrowing” but again that gets into arbitrage, float, etc.)

So, the concept of earning money was broached and Caleb was ready to grab it by the horns. Megan and I let it sit for a day and discussed privately what kind of jobs we could give him and how much was reasonable for him to earn as a result. We agreed that we pretty firmly did not want to compensate him monetarily for “chores” or those tasks which he should reasonably be expected to complete as a normal responsibility (e.g. cleaning his room, putting things away that he uses in the house, etc.). But realistically, how many tasks are there that are not chore-based that you can give a 2-year old?

After discussing options for a while, we settled on giving him the job of feeding our dog Nadine. Megan noted that he is already pretty good at it (doesn’t make a mess, more or less gives her the right amount of food, can open and close the bag himself, etc.). Moreover, it is a task that can only be done twice a day, must always be completed, and needs to be done with relative care. Plus, he loves Nadine so it is a good choice regardless.

As an aside, one of the things I like most about it is that he can ONLY do the job twice a day, so his earnings are limited. When I was 5, my parents decided to pay me to pick up sticks in our yard. The pay rate was based on the number of sticks I picked up and not tied to any other metric. So I did what any other enterprising 5-year old would do. I gathered all of the biggest sticks I could find, plopped myself on our front porch, and quickly broke them down into hundreds of small twigs. Needless to say I made some pretty good money in those 10 minutes. …and my Dad, his wallet considerably lighter, was stuck picking up the sticks I left remaining in the yard…

While I want to encourage the same out-of-of-the-box thinking in Caleb, I want it to come healthfully and through a desire to be more strategic about his finances. At this point, as he is just now starting to dabble with the responsibility, I don’t want to move him along too quickly. And in watching him spend his earnings, I think the caution is entirely warranted…

After two days of feeding Nadine, Caleb amassed 40¢! We decided to pay him a dime each time, choosing the rate to ensure that he would make enough in a short enough time to actually be able to spend it (and thus further cement the concept of earning and spending, and hopefully thereafter, saving) but not so much that he would feel as if the task was easy (e.g. “I’ll just feed Nadine one time and now I can buy whatever I want”).

I put the 4 dimes he had earned into a zip-lock bag and took him to the neighborhood store. I told him that it was his money and he could buy whatever he wanted with it (we’ll eventually need to set boundaries, but for the moment, I tried to make the experience fun and not overly complex so as to maintain his interest level). Unfortunately, there is not much one can purchase at a store for 40¢, and most of it is laden with high fructose corn syrup and obscenely name-contorted chemicals. Nonetheless, after scouring the store for something healthful in the sub $1.00 range, I took a deep breath, put my strict rules about sugar to the side, and guided him to the bins of lollipops, mints, and peanut butter/chocolate treats (15¢, 10¢, and 10¢ per unit each, respectively).

To his credit, when we first arrived in the store Caleb went straight for a bottle of water, but unfortunately would have had to feed Nadine another 10 times to be able to buy one. That said, it was a great opportunity to teach him that even though he had money, his purchasing power was limited. So after explaining that concept and scanning the shelves some more, I resigned myself to showing him the candy bins in the front, as mentioned above. We discussed asking the clerk how much everything cost, which Caleb handled like a champ. After asking how much a lollipop cost, he said “WOOOOW!” when offered the reply of 15¢.

Caleb and I discussed things for a few moments playing out what combination of treats he could buy with 40¢, and upon my guidance, he settled for one of each to the tune of 35¢. He handed over his earnings and received 5¢ back (which prompted another “WOOOOOW!”). Beaming, he carried his goods and change back home and went straight to Megan to proudly relay the experience.

As expected, and against my very uptight and normally firm notions about sugar (especially sugar in the evening), he wolfed down all three of his sweets. As was his right — he earned it.