From time to time I help people set up a financial plan for themselves. I love doing it because it is the second most impactful thing you can do for yourself. Besides your faith, nothing else touches all aspects of your life so directly and completely as money.
Over the weekend the question of how to teach kids about money came up. Obviously they won’t sit still for lengthy lectures. If they are young enough they won’t even really comprehend the ideas of delayed gratification, debt or the value of money. There are lessons they can be learning though.
Give your kids an allowance. This is an easy and immersive way to start their relationship with money. They will be able to touch it. They will watch it accumulate week after week. They live in your house, eat your food and wear clothes you gave them, but this is something that they will own.
Allowance Guidelines (Sorry about the screwy numbered list format. I can’t seem to get it to work right.)
- 1. Give it weekly
- 2. Make it easily divide into thirds (three nickels or quarters, for example)
- 3. Have your kids place it in three clear plastic containers. Label them “spend,” “save” and “God.” Put a money slot in each top. Consider drilling a hole in the top and body of the save and God jars so that they can be secured with a zip-tie if your kids are very young. Zip-ties can be removed once you know your kids understand the purpose of the jars and that funds will not be mysteriously “reallocated.”
- a. 1/3 into the spend jar
- b. 1/3 into the save jar
- c. 1/3 into the God jar (give jar if not religious)
- 4. Make a big deal out of it
- a. Talk about why it is good to save
- b. Talk about why we give money to God (or to charity)
- c. Talk about what a big responsibility it is to have money
- d. Talk about how proud you are when they avoid an impulse purchase on a piece of junk, etc.
- Talk about how much work they did to get that money
- 5. Make it fun
- a. Count the money with your child
- b. Stack it to see how many dollars it equals
- c. Talk about what they could buy or do with it
Allow your kids to use their spend money whenever and however they want to. The obvious exceptions apply (no chainsaws or Playboys). Be sure to talk through the consequences of these purchases. “Because you spent all your fun money on gum, you don’t have enough for the movie.” Remind them to weigh out their decisions. “If you buy the Hot Wheels car now, you won’t have the money you need to get the football you talked about yesterday.”
Allow your kids to use the save money only for bigger longer-term purchases and only after they have talked it through with you and you agree on it. Use this money as a tool to teach your children about goal setting. There should never be an urgent/knee-jerk purchase with this money. Sleeping on a decision to use the save money is a good rule of thumb. “The next time we come to Target, if you still want it, you can get it” can also work.
Have your kids put the God money in the collection plate on a regular basis. If not religious, talk through a charitable way to use the money. Have the children directly involved in giving this money on a regular basis. Money is only good for fun, saving and giving away. Of these three, giving it away makes the only life-long lasting impact on the child. Be sure to include this aspect of money in your financial training.
Stop buying stuff for your kids. This does not include special gifts or necessities. For things that are their wants (not needs), have them pay for the items or pay for a percentage of them. It is amazing how quickly things kids “need” aren’t so important when they have to spend even a little bit of their own money on them.
Give them weekly chores. Explain that everyone in the family has jobs. Let them know that they will get their money if their work is done cheerfully and on time. Let them know that they will not get their money but will still have to do the work if they are late or have to be reminded or are grump butts. The tricky part is not tying the allowance too closely to the work. If you do, kids sometimes try to pull the ol’ “It isn’t worth emptying the trash every week just to get $0.75. You can keep your money.”
Give them entrepreneurial opportunities. Let them know that there are other opportunities to earn money that are completely job-based. “You don’t have to do it at all, but if you do X, you will get X.” Maybe it is yard work, helping a neighbor, etc. Let them know that they are welcome to suggest ideas too. I can remember sharpening all of my mom’s knives for some amount of money. I vividly recall it because it was my idea and I had to redo all of them a second time to get paid because my first attempt wasn’t good enough (I kinda thought I’d be rewarded just for coming up with the idea).
As they get older, increase the allowance but also increase the responsibilities. I started out emptying trash cans around the house. By the time I was in second or third grade, I was cleaning a bathroom, vacuuming my bedroom and changing the sheets on my bed every week. This was done by or on Saturday before I could go out and play. My room had to be kept neat and my bed made on a daily basis.
If you would like additional or more detailed help for young children (3-12yr olds), consider Financial Peace Jr. by Dave Ramsey. Once they get a little older, you might like Dave’s age 10+ money management game Act Your Wage or his 13-18 yr old financial “home school” program. Please note I have not reviewed any of these three items but have only heard good things about them and I can tell you that his plan for adults is excellent.