So your child has now earned some money… now what? For my own children, I like to keep things simple. We follow the 80/10/10 rule. Save 10%, give 10%, and spend up to 80%.
Saving for "a rainy day"
Anytime my children come into money, whether by gift or through their own labors, they immediately take 10% and put that into their savings account. We used to just keep a Ziplock bag of their savings when they were younger, but now that they are ages 9 and 8, they actually have their own savings account at the bank. It doesn’t matter as much where they save it; it just matters that they do it. One extra perk of having an account, though, is that it gives an extra opportunity for them to learn how the banking relationship works. Plus, they can learn to balance their account, how interest works, and how to write checks.
Banks like to catch kids early, so it has been our experience that they roll out the red carpet to win your kids. Think of the bank as your partner in educating your kids about money.
Saving can be difficult for children because there’s no immediate gratification. To combat this, you might consider having them save for a specific item that they really want. Starting with something with a small price tag is probably preferable to something very expensive, depending on their age and ability to tolerate the wait.
Now you could argue that savings should be for emergencies, but most kids just aren’t going to have an emergency that they need to pay for. Remember, you want to keep the principles relevant to their lives rather than being a stickler on the details. When it comes to our kids and their savings, they know that they are saving for a large future purchase, which will most likely be a car. My son, however, has in mind that his first big purchase will be a boat, so we’ll see what the future holds for him. Either way, he will have a nice chunk of change to contribute, and that’s what’s important.
You Want Me to Give Away My Money?
The next thing our kids do with their money is give 10% away. For our household, this is a tithe to our church. I will be the first to admit that this can be the most difficult area, depending on your child. We have one child who has always seemed to enjoy giving their tithe. We have another who went from tantrums at age 3 to logical arguments around age 5 in an effort to avoid tithing. It was a battle, to say the least. But we stuck with it and I am glad to tell you that this child now gladly gives their tithe, and has chosen to give extra on many occasions.
Regardless of what your beliefs are about giving, or what you call it, this is an excellent opportunity to teach generosity and compassion for others. Even though I am a financial person, I believe it is also an important part of keeping money in the proper perspective. Giving money reminds us that money is a tool, not a slave master. We control the money; money does not control us.
Spend, Baby, Spend!
Now this is the part that everybody likes! It’s lots of fun for the child doing the spending, but it’s also full of opportunities to teach some very important lessons. We allow our children to spend up to 80% of their money wisely. Well, actually, we also allow them to spend it foolishly. It is their money, after all, and sometimes experience is the best teacher when mom and dad’s counsel isn’t cutting it.
Some people spend hours going from store to store to save a nickel. If that’s your thing, and you enjoy it, go for it. That just doesn’t compute in efficiency for me, so what we usually do is shop around on the internet, figure out who has a good price, and then buy.
Anybody can spend money. It takes applied knowledge to spend it wisely.
There are so many variables in the buying process and your child has many decisions to make:
Do I want to pay more in the store or can I wait for the shipping period to save money if I buy online?
Is there an advantage to buying at a certain store? (For example, my son likes to buy his fishing supplies at a local shop that’s more expensive than Wal-Mart, but his purchases generally come with some great fishing tips, and any angler can appreciate that.)
Do I really need this top-of-the-line model for an extra $xx or is this other model good enough?
Does the name brand come with another level of quality that I need or is the knock-off version suitable for me?
Am I sure I want to spend all of my spending money right now? (e.g., Do I have a vacation coming up where I might want some spending money?)
How much is the tax on this item? And am I sure I have enough to pay for the item and tax?
Would it be worth it to buy this item used to save some money?
The list could go on and on, depending on what your child wants to buy. The important thing is that you help them think and talk through their purchase options so that they will be a smart consumer.
So what do you do in your household? I’d love to hear any tips that you have! In the meantime, have fun saving, giving, and spending!
Stay tuned as we tackle investing and credit in our next blog post…
P.S. If you missed my first post in this series on Kids & Money, click HERE to read it now.
Click HERE to read the next post in this series, Kids & Money Part III.