How She Teaches Kids About Money
A few months ago, I realized it was time to reevaluate our family money system. I was paying my kids their age in dollars every month, and they were barely lifting a finger to help in the house. Their rooms were spewing clothes and books into the hallways. They left their dishes on the table. And I won't even talk about the boys' bathroom. (I have four sons.)
I needed a new plan. And to make that plan, I wanted to find out what's actually working in the trenches for other moms. So for the last month and a half, I've been talking to moms about their money systems, their chore systems, and how they intersect (or not).
This post compiles many of the great ideas I gathered from the moms I talked to, as well as some of the blogs and books I've read. You can jump to particular topics by clicking on the list below:
Family Economic Systems
There are two basic methods for giving kids money:
1. Allowance: a weekly or monthly stipend, independent of chores, for the main purpose of teaching kids how to manage money.
2. Commission: paying kids based on clearly defined chores and other responsibilities.
Then there's a third option—not paying them at all.
I'm not going to go into detail about the pros and cons of these systems here, because I already did that in my post, "The Great Allowance Debate." But most moms agree that the main advantages of paying kids money are that they learn to spend, give and save and they have a chance to make and learn from financial mistakes with small amounts of money at a young age, before the stakes get too high. Another great benefit is that parents don’t always have to say “no” when children ask for something. Instead, we can say, “If that’s how you want to spend your money, go ahead and save up.”
When to Start
I received mixed responses about when to start giving kids money. Most moms I talked to start when their kids start school. Others wait until they’re eight and more responsible. Some varied the age based on the personalities of their kids, and whether they could keep from losing money. A few cut off allowance at 12 when the kids could start earning money by babysitting, mowing lawns, etc.
How Much to Pay
Answers to this question were all over the place, but most parents used a sliding scale based on age. Here is a sampling of what kids are making these days.
- One dollar more than their age (per month)
- One dollar for each year of age (per month)
- One dollar for each year of age (per week)
- One dollar per grade (per week)
- Double their grade (per month)
- $3-$8 per week, depending on age
- $1 each day that the child completes chores
- $1 per chore
- Variable amounts per chore
Of course, part of the decision of how much to pay your children depends on what you expect them to buy for themselves. Most moms I talked to expect children to pay for any toys or entertainment outside of birthday or holiday gifts or family activities, or for extra “fun” clothing items. Some also have kids pay for gifts for friends or siblings. Those who pay a more generous allowance often require kids to pay for clothing and other needs, though this is usually once they get closer to the teenage years. Many parents meet kids halfway on large purchases, such as camps, bicycles, etc.
The Family Bank
Family money systems live and die by logistics. Most families choose a consistent time either weekly or monthly for payday. Financial expert Suze Orman suggests paying weekly for young kids, then every other week by age 12.
The big variations comes in how families distribute the money, from cash to fake checking accounts to phone apps. Here are some examples:
- Heidi Rose's family bank is a binder with nine pencil pouches (three for each kid). One pouch is for spending, one for saving, and one for tithing/charity. Each pouch has a ledger inside, as well. Each time money goes in, or goes out, the kids mark on the ledger how much was added or taken out, and the purpose. When they make money, 10 percent automatically goes to the tithing/charity pouch and they divide the rest into saving and spending. To encourage long term saving, Heidi offers an monthly 8% interest rate.
- Ralphie Jacobs didn't want her kids to lose their cash, so she created virtual checking accounts for her kids. They use check registers to keep track of deposits and withdrawals and write fake checks to mom if they want something at the store. Ralphie then pays for the item with her credit card. (You can read more about her money system at Raisethegood.com.)
- Each of Audra Schwenkler's kids keep cash in three jars: one for spending, one for saving, and one for giving.
- I use the Bankaroo app to track my kids money virtually. They each have two accounts, one for spending and one for tithing. The app allows us to track what they earn and spend, and since I always have my phone with me when we're shopping, they don't have to remember to bring their money. I just pay for it and then subtract if from the app. (Other apps include Allowancebot, Allowance Manager, and Famzoo.) Each child also has a real savings account for long-term savings. We match their contributions.
- Shaneen Karren tracks her kids' money on an Excel spreadsheet and tracks their savings accounts with them online.
How Kids Earn Money
Kids and moms alike can get pretty creative about great ways for kids to earn money in and out of the home.
- Lisa Hutchings has chore auctions on Saturdays so the kids can bid on how much money they are willing to accept to do specific chores.
- Heidi Rose's kids live near a golf course and they started a business selling golf balls and water to passing golfers. They run the whole business and she does very little behind the scened. Sometimes her 11-year-old brings home $50 on a Saturday afternoon. While $20 used to be this nebulous amount of money her kids now equate it to a certain number of hours spent selling golf balls.
- Jessica Rydalch provides opportunities for her older kids to work at their family-owned business. Since it is a little more difficult for the younger kids to work, she pays them for reading books.
- For extra chores, Lori Brescia sometimes clips dollar bills directly on her job board, labeled with specific jobs—different amounts depending on the job. It's a very tangible way to show them how much money they stand to make. Other weeks, she'll write jobs and dollar amounts for the kids to pick from a jar.
How To Teach Good Spending Habits
One of the most difficult ways to teach our kids is to stand back and let them make mistakes. But money is a great way to teach about choices and consequences. While most parents set some basic ground rules about how children spend their money (mostly safety or health issues), they leave most purchasing decisions up to the kids. It's their money, after all.
Mary Price's daughter saved up and bought a $200 iPod Touch. Soon after buying it, she lost it on an airplane. She was devastated. They submitted a report and waited and prayed, but it never came. Mary could have easily purchased a new one for her, but decided to have her save up again. When she did save enough money, she ended up buying something different.
Several moms I talked to implement a think-it-through period to help avoid impulse buys, usually a day or two. In his book, "The Opposite of Spoiled," Ron Leiber talks about a family who made their kids write essays explaining why they wanted to buy big-ticket items, to make sure they really thought it through first. Heidi Rose doesn't usually let her kids buy anything at the store unless they go there specifically to purchase that item. For example she won't say yes to candy in the checkout aisle even if they have the money to spend, unless they have come to the store specifically to buy candy.
When my son saved money to buy an especially expensive Lego set, my husband and I helped him come up with a list of other things that he could buy with the same amount of money. Then we let him make the choice. He ultimately decided to use the money to pay for a plane ticket to fly his cousin in for a visit.
Every time we take our kids to the store it can be a teaching opportunity. Heidi talks to her children a lot about opportunity cost and helps them compare prices. She suggests a movie theater as a great place to demonstrate this concept. She has them look at the prices of candy or treats, and evaluate whether it's a good deal compared to what it costs elsewhere. More often than not they decide they'd rather not waste their money on expensive souvenirs or treats. Heidi says, "One time at an amusement park they saw a stuffed animal for $20. One of my kids said to his brother, 'That toy costs as much as 20 ice cream cones!' It was a proud moment. And then I noted that we needed to get ice cream cones a little less often."
Ron Lieber, author of " came up with a great system to teach kids about the relative costs of different brands. He draws a horizontal line with the word "Need" on one side and 'Want" on the other. On the Need side he writes the cost of a discount brand of a specific item. On the far right, he writes the price of the most expensive name brand. He and his wife then make a vertical line in the middle, with how much they're willing to spend. They call this their "Lands' End Line." Lieber explains, "That means we'd pay whatever Lands' End (my definition of a suitably mid-priced merchant that sells quality clothing) would charge for any clothing needs, even if an item comes from some other designer or shop. Anything with a price to the right of the Lands' End Line would be a want." If his daughter wants to go over the Lands' End Line and buy something more expensive, she has to pay the difference with her own money.
Mary teaches her kids not to buy anything unless they really love it. "We don’t buy things simply because they are on sale–once that item enters our home we then have to manage it (wash it fold it keep track of it etc.). So as a family we are careful about the items we allow in. This frees up time to spend on our family rather then constantly managing things.”
Another way to teach kids to spend wisely is to model the behavior ourselves, by making our decision-making process visible. For example, when Amanda Roos makes a grocery list, she talks to her kids about how having a list helps her avoid impulse buying. "I explain that we can’t buy a new car because we’re a single income family and the old car works fine. And before I buy something, I ask myself out loud, “Do I really need this or would my money be better spent somewhere else?"
Heidi takes her kids shopping with her, especially for essentials like groceries or clothes. Then they know these things don't magically appear and they see her compare prices. I also like to go to garage sales with them, and they love the idea of finding things they want at a deal.
Shaneen Karren recognizes that teaching about money will look different with different children: "You will see differences in each of your children on how they save and spend money. In just my older three kids I have a huge saver, a huge spender, and an ‘in-betweener.’ They run the whole spectrum! They come with their own weaknesses when it comes to money. Make sure they understand money was meant to make us and others happy. Used wisely, it can bring blessings!"
How to Teach Kids to Save
Most parents either strongly encourage or even require their children to save some of the money they receive. This usually starts with short-term savings, such as toys or activities, and then builds up to long-term savings for things like cars and college. Lieber suggests that for young children you can even cut out a picture of a toy that your young child wants to save up for and tape it to his/her savings jar as a tangible reminder.
Many parents encourage their kids to save by teaching them about the principle of interest. Some offer a monthly interest rate of anywhere from 5% to %50. Others, like Jessica Rydalch, match savings contributions to her children's college and mission fund dollar for dollar. Her kids are eager to save with a return like that. If they decide to take their savings and use it for something else that they feel is unwise, they take our portion back.
Audra planned a big discussion for her children about saving and the time value of money, and they opened up an investment account for their teenager. He has really enjoyed tracking and evaluating his investments.
The big whammy of savings goals for most children is college. Financial expert Suze Orman suggests having a conversation about the cost of college early, at around 9th grade. She recommends sitting down to compare costs of different colleges, how much you're willing and able to pay, and how scholarships and financial aid work. (Read full article here.)
How to Teach Kids to Give
One of the great opportunities associated with teaching kids about money is teaching them to give. Some parents suggest to their children that they designate a certain percentage of their money to giving, often a 10% tithe to their church or a contribution to another charitable organization of their choice. This decision making process can be a great way to define what you value as a family and what your child values individually.
Wendy Mogel, author of "The Blessing of a Skinned Knee," also suggests that you involve your kids when you donate used items. Let them help you decide what to donate and research the different options of where to donate the items.
How To Teach About Family Finances
When D'Lonna Nelson's husband Wayne finished his medical residency, they felt an urgency to get out of debt and get our finances in line. Even though her four boys were young, they decided to involve them in the process. They talked about their goal of being debt free, why this goal was important, and the sacrifices they would have to make in order to reach this goal. "The kids were amazing," D'Lonna says. "They were understanding of why we had to miss out on some activities or why we would say no to treats at the grocery store. They would even remind Wayne and I not to spend money at certain times. We celebrated each small victory as we went."
Lieber is a big advocate of talking to our kids openly about our finances, in age-appropriate way. Orman is also on this bandwagon, encouraging parents to have kids help pay family bills and to sit down as a family each month to talk about spending on utilities, mortgage, etc. She even suggests that when you need to set up automatic bill pay online or set up accounts, that you let your kids control the mouse and guide them through the process, so it's easy for them to set up their own, eventually. (Read more of her ideas about this topic here.)
My brother-in-law, John Archibald makes the electricity bill a game. When it comes in the mail, he waves it around excitedly and asks the kids to guess what it was this month. They open it up together and look at the month-to-month comparisons and talk about what they could do to make it lower. Then he asks questions like, "Would you rather spend money on leaving lights on or on ice cream?" And if the bill is lower the next month, they go out to get a treat with the difference.
Ultimately, as Richard and Linda Eyre emphasize in their book "The Entitlement Trap," the most important thing about teaching kids how to manage money isn't about the money at all: "[G]iving kids ownership of money is the precursor to giving them ownership of their things, of their savings, and of their ability to give. And this kind of material ownership can be the forerunner of giving kids ownership of their goals, their education, and their whole lives."
Raise The Good: Ralphie Jacobs, "18 FAQs About Our Family Economy"
Power of Moms: Shawnie Pothier, "A Money System that Works"
Suze Orman: Blog Series: Teach Your Children Well