Do you think your children are too young to start saving money? It’s almost NEVER too early to start teaching your children to save and be fiscally responsible. There are also fun ways to do it that don’t involve complicated conversations about the time value of money and the stock market.
As I became a parent and began thinking about how to instill in my children the sound financial habits my parents taught me, I did what I usually do when it came to important issues, I read and researched. One book I found that had a lot of great advice and inspired me to act was “The Opposite of Spoiled: Raising Children Who Are Grounded, Generous and Smart About Money” by Ron Lieber. One of his concepts involves giving children an opportunity to learn about money management at a young age. Using his guidance, my husband and I developed our own spin on his allowance idea.
When our daughter was 7 and our son was 5, we started giving them a weekly allowance. Yes, we started giving our 5-year-old an allowance. It may sound too young, but it’s not. Uniquely, we did not tie household chores or obligations to their allowance like many parents may do. As the author Ron Lieber points out, children will learn the value of working for income soon enough anyway (think lifeguarding, babysitting, mowing lawns in their teenage years), so he recommends taking this opportunity to teach them money management skills rather than working for income at this early age.
Everyone’s budget is different (and it depends on the number of children you have) but for us and our situation, we settled on giving each child $1 per year of their age per week. So initially this meant $7 per week for our daughter and $5 per week for our son. This also laid the groundwork for giving them “raises” each year with their birthdays which provided an opportunity for them to figure out what to do with that additional money each year — and not default to spending more simply because they were receiving more.
Along with the weekly allowance, came their “allowance jars” to hold their dollar bills. Each child gets three clear tubular containers they can decorate with colored lids. The size or shape doesn’t matter, but what does matter is that they are clear and see-through. This way the children can physically see their money, which impacts them even more because they see their money grow each week, literally.
The three allowance jars represent Spending, Saving, and Giving. Of the total allowance they get each week, some amount goes into each jar. At their young age we guided them on how much should go in each, but with the intent to let them make those decisions as they get older. The takeaway is that they learn that the total amount of allowance — gross income — they receive, not all of it gets spent. Set some aside for savings and some aside for giving.
Our daughter initially put $1 into Giving, $2 in Savings, and $4 in Spending. The ratios will change year to year given that you’re working with single digits and low double digits, but the general premise is that half or more will go to Spending, 20%-30% in Savings and the remainder (generally around 10%) will go to Giving.
Besides learning to “not spend it all” our children were now empowered to spend their own money. No more trips to the grocery store or Target and being asked the “Can I have this?” about a toy or a book they wanted. Now they had their own money to spend. If they spent all their Spending money last week on a toy, then the answer was very easy and they answered it for themselves…if they didn’t have it, they couldn’t buy it. But when they do have their own money, they can buy whatever they want (within reason). They love being able to go out and know they can buy something if they have their own funds..
As for Savings, they now can save for “big” things. My daughter saved to buy a doll house — that she decided she wanted right around Christmastime AFTER Santa had already committed to another big present. My son has saved for expensive Halloween decorations he really wanted.
Saving for big things has taught them the all-important lesson of delayed gratification. In today’s age of streaming TV and social media where entertainment and connection are constant and always on, it’s so important that they have opportunities to learn “good things come to those who wait” AND to not buy something before you can afford it. In this case, afford it means only if you have the cash up front.
As far as Giving, this has been an easy way for the children to learn about giving to others and to instill the habit of setting aside some of the money they receive toward helping others. Whether it’s regular tithing to a church or giving a donation to a local animal shelter, there are many ways the children use their Giving money. This creates amazing opportunities to have important conversations about people less fortunate than us and how we can share our resources to positively impact the lives of others.
There have been times they’ve asked if they can use their Giving money for something that’s a “nice idea,” but not quite the right intent of “giving to those in need.” You can’t just give it to your friend so they can buy a Barbie because they didn’t get one for their birthday, even though that’s a sweet idea.
The best habits are the ones formed at an early age. Building discipline takes time and practice. Starting young is a great idea. Take this approach to giving your children an allowance and make it yours. Just remember to do it regularly and don’t skip weeks. Annuity payments, royalties, interest and paychecks are all paid on time and regularly; so, should their allowance.
The important thing is to set an example and show them how to set aside some money. After years of practice, they will be pros as adults managing their own income streams. Don’t be surprised if they become very savvy when it comes to how much things cost and what they choose to spend their money on. At 6 years old my son had an internal debate about whether to take money to the book fair or save it for when we went on vacation the following week. He ended up spending a little at the book fair and saving the rest for vacation. After only one year he had already built up the discipline to analyze opportunity costs. Children are smart, especially if you give them the chance to show you.