Over the last few months my preschoolers have been showing an increased interest in figuring out money. They are asking me about prices for different things at the store, wondering whether we have money for one thing or another, and collecting all the coins they could find. I confess I was a bit surprised when the four year old asked me how he could earn money to put in his piggy bank. That is when I reached the conclusion that this was prime time to start teaching my kiddos about money.
Coincidentally, I recently came across an awesome new arrival at the local public library entitled “The Opposite of Spoiled: Raising Kids Who Are Grounded, Generous, and Smart About Money” by Ron Lieber. This book was an amazing and very informative read. I learned a lot from it and felt much better prepared for the task ahead. I definitely recommend it to everyone who is in anyway involved in raising children.
Why we HAVE TO teach our kids about money?
It seems that in today’s society talking to children about money is often taboo. It appears that, as parents, we shy away from money related questions by giving short answers and avoiding the topic. Since we, as parents, don’t want our kids to be concerned about whether or not we can provide for them and other equally uncomfortable social economic questions, we tend to avoid the topic altogether.
The problem then, lies in the fact that our kids are left to figure these questions out on their own or with the help of their peers who know as little as they do. If we never teach our children how to properly budget their money, how to save for future endeavors, how to be socially responsible, how then can we expect them to know all that when they leave the house? Seriously, think about it!
Check out this quote from Ron Lieber:
“Figuring out how much to pay for a college education is one of the biggest financial decisions people make in their lifetimes and parents often leave the final call to a seventeen year old who has never purchased anything more expensive than a bicycle. There is really only one word on this state of affairs, lunacy.”
Not only that, but as soon as they graduate from college and get their first job, young adults are expected to make other important financial decisions such as funding retirement accounts and buying health insurance.
I know that, as a teen or young adult, I would have greatly benefited from someone taking the time to explain to me how to file my taxes, how to balance a check book, how to keep a budget, the principles of compound interest, and how big of an impact my early money spending/saving habits would have on my future. Don’t you feel the same?
As an adult, I cannot change my past, but as a parent, I can impact my children’s future by making sure they have a different experience.
Where do I begin?
There are many resources available to help parents teach kids about money. Even if we don’t consider ourselves “money savvy”, books like the one cited above by Ron Lieber, and others such as “Make your Kid A Money Genius (even if you are not)” by Beth Kobliner, and “Smart Money, Smart Kids” by Dave Ramsey and his daughter Rachel Cruze, are great resources to help guide us in this endeavor.
There are also full kits, such as Financial Peace Junior by Dave Ramsey, that is designed to help parents teach kids ages 3-12 about money with lots of resources along with step-by-step instructions.
As for me, after reading Ron Lieber’s book, I decided that the best place to start with my inquisitive preschoolers would be with some hands on experience. So, we have recently started a new practice at our house: a weekly allowance.
There are many ways to look at allowances. Some people believe children need to learn that money comes from work and that they should only get money as a payment for chores. On the other hand, there are those who believe that children need to learn to contribute to the family without the expectation of a payment. Just as adults don’t expect get paid for maintaining their home, neither should the children. Those in the latter group prefer not associate allowance with completion of chores.
Personally, I view our weekly allowance plan as an important tool to teach my children how to handle money. While I want them to understand their contributions to the family in the form of the fulfillment of their chores is important, I do not want them to expect to be paid for it. As members of our family, they have responsibilities as well as I do in the proper functioning of our household and we do it to help each other, not for financial gain. I am not opposed however, to, in the future, paying them for tasks that are out of ordinary and that I might be paying someone else to do for me.
However you decide to look at it, an allowance is a great tool to help introduce children to important financial principles such as basic budgeting skills, saving, and giving.
So, how did I get started?
To begin, I followed Ron Lieber’s suggestion of getting three large, easy to handle clear containers for each child. I found these containers (see picture above) at the local dollar store. The clear containers help the kids get a visual of how their money is building over time or being used. Unlike the usual piggy banks, it should not be difficult for the child to take the money in and out of the containers.
I also involved the kids in the process by letting each one pick a set of stickers and decorate their containers which I had labeled with the words GIVE, SAVE, and SPEND.
Having three separate containers introduces them to basics principle of budgeting and the idea that all money should have a purpose. As they get older, and more proficient at handling their money, I plan to introduce a fourth container labeled INVEST. We can talk more about that one when we get there. =D
How much to give?
The decision of how much to give is entirely up to you. This will depend on your family budget and means. Ron Lieber and a few other authors I read out there suggest starting with 50 cents to $1 per year of age.
Again, this is entirely up to you. The important thing here is consistency. Whether you decide to do it weekly, biweekly, or monthly, just make sure it is consistent. Just like it is easier for you to budget and plan your family budget when you can anticipate your income, it will be easier for your child to learn these principles if you are consistent.
Since it is a bit more difficult for younger children to fully comprehend the concept of time, at our home, we opted to do it on a weekly basis rather than longer intervals. This way, my preschoolers can anticipate that every Thursday evening they will be pulling out their containers and budgeting the money they received.
How can I help them budget their money?
How your kids budget the money (or divide it up between the containers) will depend on your child’s age. For my preschoolers who don’t yet understand percentages, the best thing is to keep it simple.
For my three year old for example, she receives six quarters and divides them equally among her three containers. In other words, every week she has 50 cents to spend, 50 cents to save, and 50 cents to give. The four year old, who receives eight quarters, has 50 cents to spend, 50 cents to give, and saves $1.
As they get older and more advanced in their math skills, I hope to introduce them to the concept of tithing.
How do the containers work?
As I mentioned earlier each container is clearly labeled with the words SAVE, SPEND, and GIVE. However, in order to help get the point across, the kids and I worked together to make the plans for the money in each of their containers.
For the SAVE category, we went online and researched an item they really wanted to get. My four year-old, for example, is currently fascinated by Lego toys so he picked a set of Lego people he liked. Once he chose it, I printed a picture of the toy, wrote down the price, and pasted it on the inside of the clear container labeled SAVE. This serves as a reminder for him that the money he is saving has a purpose and goal. It helps him stay on task and look forward to what is ahead. This way, not only is he learning to save, he is also learning a valuable lesson in self control and delayed gratification.
It is very important that you make sure that whatever item your child chooses has an adequate price range based on their earnings. If your child is saving $1/month and chooses a $30 item, it will take longer than 2 years to save enough to buy the item. That might be too long of a wait for a younger child to understand the lesson you are trying to teach. Starting with a smaller savings goal such as $5 dollar item might be more appropriate to help them get the point.
When it comes to the GIVE category, we divide ours into two. Since my kiddos add 50 cents/week to this container (and they get paid in quarters), they separate 1 quarter to give at our local church weekly, and one for a special project of their choosing. For this special project, we visited the ADRA gift catalogue (A trustworthy relief agency that “works in more than 130 countries to bring long-term development programs and immediate emergency response to communities through a network of global offices”) and each kid picked a project that they want to help with.
My daughter, for example, chose to give to a project that gives chickens to help provide for a family in need. Once she picked that project, I printed a picture of a chicken, wrote down the amount she needs for the project, and pasted it to the inside of her GIVE container to help her remember what that money she will give will accomplish.
Lastly, the SPEND container is just what it says, money to spend. They have full access to this money and can spend as they please with a few restrictions. The kids are welcome to carry this money with them whenever we go out but they usually choose not to. In our case, since 50 cents is not enough to buy much these days, I take the kids to visit the dollar store when they have at least a dollar in their SPEND containers and they have a blast. The dollar store is certainly the easiest place at this stage because they have a great variety of items and everything there is within their spending budget.
I make sure the kids carry their own money and pay for the items themselves. I love to see their look of pride and independence when they hand the cashier the money they pulled out of their pocket and get their purchased item, receipt, and change in return.
The items they choose to purchase surprise me too! Last time I took the kids to the dollar store, the four year-old decided, after much deliberation, he wasn’t going to get one of the toys but he wanted to buy a spray bottle. A spray bottle?!!! That was my reaction exactly! He is currently using it to water the plants outside and to play water fights with his sister. Last week, he also decided that instead of spending his money at the dollar store, he wanted to save $2 in his spend container to buy a spinner fidget toy like his dad’s.
The restrictions to the spending money are few but they do exist. Items which I, as a parent, find to be dangerous or inappropriate, are off limits. This is also an important lesson to learn because even as adults, having money to spend doesn’t mean that spending it on certain things is a good idea.
Another lesson our kids are learning through this practice is the value of coins and bills. My preschoolers are now aware that once they have four quarters in any of the containers they can exchange them for $1 bill. Once they have 5 $1 dollar bills than can exchange those for a $5 dollar bill. They are slowly learning the value of other coins too.
As they grow and learn, I plan to involve them more and more with the family budget decisions. Giving them more tools, responsibility, and opportunities to learn, in a safe and supportive environment how they can make wise financial decisions for themselves and for their family. For now, I think the weekly allowance is a good place to start.
What did you think of this post? How do/did you teach your young kids about money? Do/did you have allowances in your home? I am looking forward to reading your thoughts in the comments below.
P.S. Most of the principles found in this post I learned from Ron Lieber’s book.