Money, money, money, what a challenge for us all! It is so important to pass along to our kids a firm foundation for money in their lives. However, in our love and protectiveness we tend to over-protect this essential skill-building opportunity while they are young.
There are things to do at different ages and stages to help introduce money concepts to your kids so that by the time they graduate from high school they know about budgeting, credit cards and debt. In this podcast, I’ll concentrate on what to do with younger kids, from toddler years up through elementary school using a simple spend-save-share method. In the next podcast, I’ll go into more advanced topics that will cover the middle and high school years including budgeting and handling credit cards.
I talked a little about allowances in the previous podcast on Chores, and I want to make sure we’re all on the same page, we don’t give allowance for regular chores. This allowance money we’re talking about is money that we give our kids for them to learn how to use money. Please listen to the Chores podcast to if you want to understand more about why chores are separate from allowance since I already covered that topic there.
Let’s dive in!
For those little ones, how many of us, when relatives give our kids holiday or birthday money, stash it away in a bank account that our children can't get to? Probably most of us! Why? Because "we don't want to them to blow it", right? That money would be "wasted" on stuff that isn't important and we just can't let that happen.
Most of you know about helicopter parents and this money situation is a perfec t storm for us recovering helicopters. We mean well, but it hurts our kids in the long run. How will they ever learn that if they "waste" their money there won't be any left over for future wants and needs? When our kids are young is the time to allow as many affordable mistakes as possible; money is certainly a prime target for small mistakes now to avoid big mistakes later. I love this topic since it pays off big-time in the long run.
When to Start Allowance
I want you to start allowance at about Ages 3 to 5 and use this method until about 10 or 11. I’m going to go over the method of giving them money, how much to give them and then how to set up learning opportunities for them to learn how to use it.
There’s something called the Three Jars Method - this is a classic! You set up 3 clear jars so that your child can visibly see the money in them. One is for spending, one for saving and one for sharing. Let your child see the money build up. Dave Ramsey, the financial guru, said a Cambridge study found that kids money habits are formed by about age 7. Wow. That’s early so let’s get them up and running as soon as possible. With kids who are 3 to 5, you’ll be getting them used to seeing money and using money in very simple ways but those jars will grow to have meaning by about 6-7. Do start, even if you have really young kids.
How much do you give as allowance and when? As much as you think is appropriate and can afford, could be a quarter or a dollar. It could be per week or per month, doesn't matter, but be consistent. I used monthly. The amounts can change as your kids get older; I usually gave them a “raise” on their birthdays. You’re going to have them split the allowance between the 3 jars. Some number that can be easily split by three would be nice too. You do want to not give so much that they’re running out every week and buying stuff. Make them save for things they want.
If they get birthday or holiday gifts, help them split the money between the jars. Help them count it as it grows so you can build math skills along with money skills.
Next, you let them have opportunities to Spend-Save-Give. Let’s go over some ideas now.
SPEND - When you are at the store and they ask for a treat, let them use THEIR "spend" money instead of just using yours. If they didn’t bring any of their money, I would encourage you to give them empathy in the form of, “Gee, this is such a bummer. You didn’t bring your money and you’d really like to buy that toy. Darn. Maybe next time we come back you’ll have money to buy that. Mommy buys things on our shopping list, not extra items. I’m so sorry.” Even if it brings on a tantrum just stick with it. If it brings on whining try, “And what did I say?” Your child is learning that money doesn’t grow on trees, that you have to have some and have it with you if you want “stuff”.
However, if you really think that is too mean then you can lend them the money and have them pay you back when they get home. I would charge some sort of interest in the form of extra money like a real loan would have or maybe an extra chore around the house since it’s an energy drain that you had to use your money since your child forgot theirs. However, your kids learn to carry their money when they go to a store with you pretty darn fast if you give them the empathy routine. You want them to know shopping takes money, it’s not just a “look, see, buy” event but a “look, see, do-I-have-money-to-buy” event.
SAVE – Whenever you think there’s enough money in their SAVE jar, go with them to open a simple savings account once they get to about 6 or 7. Have them put their savings in that account at least once a year, you might even match the amount dollar for dollar or at a 50% rate. Let them see it growing. Allow them to "save" for something special so they can practice delayed gratification - a bike, a large LEGO set, an expensive doll, etc. Research says that mastering the art of delayed gratification is a SUPER helpful indicator for future success in life.
Some families will call this account “college savings” to promote the idea that their kids will be going to college but it could have some other name but you need to differentiate it from the “spend” money in a way that’s farther and less immediate in nature. One of my friends had an accounting book instead of using a real bank. She labeled it “Bank of Mom” and put all the money transactions in it. Do what works for you but the more you can make it be a realistic banking situation, the better.
SHARE - If you go to church, let them take their "share" money for a donation, not yours. Maybe once a year you have them pick a charity; they can use their "share" money on. We used Heifer International for years as a "share" when my boys were little-- super fun to sponsor cows and chickens or even beehives in third world countries that help people get out of poverty. But work with your kids to figure out what they might care about – Make A Wish? Habitat for Humanity, Humane Society, Doctors without Borders. It’s great to model for our kids that money and the sharing of money can help others, not just themselves.
SPECIAL MONEY/Early Budgeting
The last skill with money for younger ones that I want to pass on to you is an early introduction to budgeting. If you, as a parent when traveling or going to a special event like a theme park, typically give in to your kids who always beg for souvenirs, this simple budgeting practice will allow them to have independence to make more choices on their own.
Many of us don’t mind the concept of buying our kids something to remember a trip. However, we often get roped into buying things at every stop and often spend more than we want to. Those adorable puppy eyes pleading with us for one more set of polished rocks are just sometimes beyond us to resist, right?
Here’s the new plan: Before you head off on vacation, set up a travel trinket budget for your kids. They can spend it on anything but when their trinket money is gone, it's gone! So sad... ;). Sure, your kids will pick some throw-away items that you think are stupid and a waste that you know they’ll lose interest in a day, but what a great time for them to learn this lesson. By keeping our judgements of what they buy to ourselves, this new budget process will help regulate their future purchases so you won’t have to. Your job is to set up that budget ahead of time and stick to it. I’d even give the kids the cash dollars and a wallet so they have a chance to physically deal with bills and change. They might even learn what it’s like to lose a wallet. Ouch! Ya know? I would probably wait until 5 or 6 to institute trinket budgeting when your kids have mastered some basic math.
How much should your vacation trinket budget be? It will really depend on what your family can afford but the overall idea is “not enough”. For my boys when they were in elementary school, I gave them $20 each for a 3-week vacation. This was way less than I would have spent in previous summers before I figured out this trinket budget, but it totally worked. When they wanted something, I could just ask them if they had money left. It was so freeing! They were also welcome to bring some of their SPEND money out of their spend jar if they’d like to have more. It was totally up to them to bring that extra money. It certainly wasn’t on my packing list for vacation.
That’s all for now! Good luck on getting some money understanding into your young ones. Don’t forget to listen to my next podcast as your kids get older so you can learn about more advanced budgeting and spending habits that will get them really ready for adulthood. I do have a Pinterest board with more ideas for teaching about money.