It’s commonly known that talking about money is still a bit of a taboo subject. We share tips on this blog about how having the #RealMoneyTalk helps us be open and honest about our financial situation, struggles, and goals. But what about when it comes to having “the talk” with our kids?
I admit that although I’ve talked to my kids (8-year-old girl and 5-year-old boy) about getting “allowance” for what we expect them to do each day/week around the house – even created cute “Morning/Night” checklists that I’ve hung on their doors – I have yet to actually give them any cash to manage. It’s this arbitrary amount that actually doesn’t really mean anything. They will say “I’m saving my allowance for…” whatever the hot new toy is, which means I must be teaching them some form of delayed gratification. So far, it’s just been words and my mood as to whether or not to give in to letting them use their “fictitious allowance” to pay for what they are begging for.
So, I decided it was time to dig in, do some research, and determine the best way for me to start teaching my kids about how to manage money – in an age-appropriate form. For me, it wasn’t that it was a “taboo” subject – heck I talk to my kids about poop every day – but it was more about my needing to educate myself on all of the different philosophies and approaches and what our family values are that we want to pass along to our children. I felt a little overwhelmed by all the articles and research, so I decided to keep it simple.
From Magical to Tangible
In a cashless generation, where kids don’t SEE money changing hands, I think it’s important for them to see and manage physical money in learning to be financially responsible and resisting impulse buys. My kids think that paying for things is “magic” since pretty much all of our family’s purchases are using a debit or credit card or bought online. I want my kids to understand that you need money to buy things. In the same way, my husband and I work to provide a home, healthy food, clothing and vacations, I want them to start practicing the “work to earn” mentality so they can learn to save, budget, set goals and – the trickiest at this age – impulse control and delayed gratification.
Earn, Save and Spend
My husband and I sat down to decide on our system for providing allowance as an earned amount of money for them to manage and what behavior should be tied to receiving money. We decided to pay our kids a weekly allowance of $1/year for their age ($8 for my 8-year-old and $5 for my 5-year-old) with clearly laid out daily and weekly chores and responsibilities. Because we want them to manage physical money, we got them each a new wallet where they can keep their earnings. We give them 80% in cash to put in their wallet to save up or spend as they choose. We want them to decide when they want to dip into their wallet and when something is meaningful or valuable enough that they want to spend some of what they’ve saved.
We also took the kids to the bank, yes the brick and mortar bank, and opened up their first savings accounts. We will then deposit the remaining 20% of their earnings into their bank account to save for an agreed upon goal (ours is a Disneyland trip!). Tip: Some banks offer incentives for opening up kid’s accounts.
A popular tactic is to break down the money into 3 categories: spending, saving and donating. I love this, but I personally decided that given my kids age, I would rather they donate their time volunteering to help others since they don’t quite grasp how giving their money helps others. Deciding what causes to give their time to is a valuable conversation to have.
Putting it into Practice
As my kids are now starting to see the value of how much money they have to spend, I try to weave lessons into day-to-day life as an ongoing dialogue. We ask them to make budget-based decisions throughout their days. For example, I took my daughter to buy some new sandals and she found a pair of cute Roxy flip-flops she liked for $17. Then we went next door to Old Navy where she could get two cute pairs for $12. So, she did the responsible thing and marched back to the first store to return the pricier pair. Good choice!
Preparing Them for the Future
In addition to the weekly allowance that the kids manage and save, my husband and I also decided to contribute $10/month into their savings account to help build up for bigger goals, like our trip to Disney. We also decided to set up a CD where we get a % back over a set period of time for not touching the money and are contributing $25/month for a car or to go toward college expenses when they graduate.
Because making sure our kids get a college education is important to us, we set up a 529 for each child with the target year of their high school graduation and we plan to contribute at least $1,000/per year per child (many have a minimum of $50/month). We’ve been advised to have our 529 accounts be aggressive at first, then more conservative as we get closer to needing the funds for college.
It’s never too early to start having the #RealMoneyTalk and teaching kids the value of the dollar.
Have your own story you want to tell or advice to share about talking to your kids about money? Share with us in the comments or tag us on social with #RealMoneyTalk!