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Kids and Money

July 19th, 2010 at 06:45 am

Our oldest is 5 and a half, and I think it's time to start really teaching him about money: how to earn it, save it, and spend it. I'm just not sure how to go about teaching him in a way that will be meaningful.

He has a piggy bank, and it's pretty full. He knows about the bank, and (we) opened a savings account with his birthday money last year.

The next step, I suppose, is an allowance. Obviously, something small -because he's still little, and is pretty sure that the size of the coin is = to it's value. (He's still working on the fact that a dime is worth more than a nickle.) So, how much?

Then there's the other issue: do we give him an allowance no matter what, or do we ask him to do chores and then give him an allowance? I want to instill that as a member of the family, we all pitch in around the house -and that helping out is not optional (and not dependent on choosing to be paid). I also don't want him to get the impression that people just hand you money and you then go your merry way.

Finally, once we've provided him some sort of income, however small, how do we best teach him how to save money, how to spend money and how to use money to help others? I've heard of people insisting that kids put 1/3 to savings, 1/3 to charity and 1/3 for spending. Has anyone done that? How do you enforce it and has it worked? As a practical matter, do you use an envelope system? Extra piggy banks?

Any ideas out there?

7 Responses to “Kids and Money”

  1. north georgia gal Says:

    It can be tricky to teach kids about money...but I agree...it is best to teach them while they are young. In our house, we all have chores that are to be done simply because we are a family and everyone must contribute. Their chores are not tied to their allowance. They get an allowance for being respectful and treating everyone in the family with respect.

  2. north georgia gal Says:

    I forgot to say also that I would suggest making your son put 10% into savings. It won't be much, but it gets him in the habit of saving 10% out of each "payday".

  3. whitestripe Says:

    I think it's best to assess what you personally do with your own money and whether or not you want to pass that onto your children. It can't be fair for a child to put 1/3 of their earnings into savings and charity if you don't do it yourself. I don't. With charity, I make a donation once a year, and it is nowhere near a third of my income - that would be crazy. I don't have children, but when we do, and we get to the stage of giving them allowance, I would want to instill in them the importance of long term and short term goals. Long term goals being a regular, smaller amount saved, for a larger purchase later on (like a car) and short term being slightly higher regular amounts for a smaller purchase (an electronic gadget, clothes etc).

  4. MonkeyMama Says:

    We pay our 5yo $2/week.

    It is not tied to chores. I wouldn't worry about the allowance thing. If you give your kid an allowance when they are 16 or 20, then you are looking at kids thinking money grows on trees. But, before they can work, it's just learning how to manage money, in my opinion. (We both had allowances until we were about 13).

    We don't do the 1/3 thing either. & i wouldn't do that with my kids. The kids end up saving all of their money, in a sense, at this age. To me, this is part of the learning process. If the kids wanted to take their $2 every week and blow it on candy, I would let them. They would then learn that they don't have anything saved for bigger purchases, etc. I'd probably encourage the 10% to savings thing when they got a real job. Maybe when they have more substantial income.

    On the charity - I think charity is good, but we focus much more on non-cash giving. I know way too many examples of broke/bankrupt people giving way more than they can. Which is also why I think 1/3 would be absurd. I'd much rather encourage my kids to find other ways to be giving.

    We just put their allowance in their piggy banks, and deposit it in their savings account when it gets to be a lot.

  5. Gayle Says:

    Currently, the only "use" we learn about is to spend. The most valuable habit we can instill in our kids is the habit of saving to invest. The only way out of The Money Trap is by "using" some of our money to make more money. If we spend it all, the only way we can get more is by trading our time. Let your money trade ITS time, so you can use your time another way.

    When kids start the habit of saving to invest, and actually using that money to make more, they learn from a young age that they have the power to create any financial reality they choose. That's what we want kids to know. That they are in charge of their decisions and that there are consequences. Money is a great teacher that way.

    Playing games that introduce empowering ideas about money is a great way to learn this together. Check out "Blast The Money Trap", by the Money Academy.

  6. MomEsq Says:

    After much discussion (and some input from the 5 year old) the decision was $2.00/week, not connected to chores. Since he hasn't indicated he wants to do anything with the money yet, I'll deal with how to save and spend as it comes up. (Although I am going to tell him the basics about saving vs. spending). The funds will go to the piggy bank and then to the savings account. We'll meet, pick a family charity every quarter and everyone will contribute something (not necessarily money).

  7. MonkeyMama Says:

    That's great! I just wanted to add that I would think any plan would be very individual to the family. Like whitestripe said. But wanted to share some of the thinking behind why we do certain things one way or another.

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