Many experts say that money is the leading cause of divorce in America. Actually I think that not knowing how to manage money and fighting about it is probably the real cause. :) Learning to manage money is a great skill to have and also helps in future relationships.
Sometimes we overlook teaching our children to manage money. I get a lot of people asking how we do it in our family, so this is what we do in a nutshell:
We give our children a stewardship over things they must purchase, and then allow them the agency to earn the money to purchase those things. Our children are responsible for purchasing their own clothing from the time they turn 8 years old. They also must earn their own spending money. We, their parents, will pay for most educational and sporting activities, including any uniforms needed. Our children REALLY like getting underwear for their birthday or socks for Christmas!
We then teach them to budget their money using the envelope system. They each have their own box with envelopes inside. The envelopes are for 10% tithing, 10% giving, 40% savings and 40% spending. They divvy the money up into their envelopes right away, or just put it into the box and wait until they get change. Occasionally we'll take the savings envelope to the bank and let them deposit it. I love Dave Ramsey's books like The Total Money Makeover: A Proven Plan for Financial Fitness
and Financial Peace program for learning to manage money, and we have our teenagers take Foundations in Personal Finance (Financial Peace for teens). (Dave Ramsey's kid's books are fun, but not really necessary.) The HARDEST part is letting them earn their own money. The kids have chores they do every day because they are part of the family; they don't get paid for those. After those are completed, they can earn money doing extra jobs. I used to pay per job, but I finally decided I wasn't very good at estimating how long things take, so I pay them $5/hr (and they have to be working hard during that time.) Quite truthfully, they rarely take me up on this. They'd rather be entrepreneurs.
We encourage our children to be entrepreneurs. Entrepreneurship teaches so many great qualities: self-reliance, hard work, self-discipline, and money management. This is hard work for the parents as well as the child! The parent has to be there to give help and motivation when they want it. And the parents also have to let the child fail when the child refuses help (but you can see they need it.) Most people think there isn't much kids can do, but there is plenty. And most people are willing to help kidpreneurs out. You and your children must open your minds to believing that it can be done. Some of our successful ventures: Lawnmowing, yard work, lawnmower tuneups, teaching classes, shoe shining, selling girl's accessories online, babysitting and more. Google "business ideas for kids" and you'll come up with a lot!
I think a family business would be wonderful too. We just haven't come up with one that would work yet.
The eldest son, Chocolate Chip, has almost enough to pay for a mission, and is hopefully going to have enough scholarship money to pay for school. He is pretty sure he'll pay cash for a house someday. Teen daughter Pepparkakor is motivated to earn and has become very handing in refashioning clothing from the thrift store. Oatmeal prefers to save all his money and not ever purchase any new clothing (instead wearing tshirts and shorts everywhere.) He was thrilled recently when someone was giving away pants in his size. Sugar is just getting into all of this, and works with Pepparkakor on a business.
Obviously you don't necessarily want to copy our family's method, but you DO want to have a plan on how you will teach your children to manage money.
Other ways to teach work is through chores. Offer love, help, praise as needed, then follow through and hold them accountable. Kids don’t do what you expect, they do what you inspect.
On possessions: Some kids are packrats. Oh yeah, some adults are too! (Like me!) I've been trying hard to do a clean out at least once or twice a year. I figure a goal of getting rid of 1/2 our possessions each year is really not that insane since we keep getting more. Of course I never do, but it's a nice goal. I also try to give the children opportunities to help the poor and needy with their things by donating some toys.
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