Teaching Your Kids about Money

Oct 5, 2010

For about a year now, I have struggled with the concept of giving our nearly-eight-year-old daughter, Jordan, an allowance. For awhile, she received a $1 a week – regardless of what chores she completed. Some weeks, I had her do a lot. Some weeks, I forgot to have her do any. Most weeks, I forgot to pay her. Ultimately, somewhere down the road, she came up to me and said that I owed her something like $16. Really? Maybe. I wasn’t sure. I hadn’t kept track. Clearly, my system was not working.

And, that stressed me out immeasurably because Rob and I are, as a couple, very concerned about not only saving money, but also teaching our children the value of money and hard work . . . how to earn it . . . save it . . . spend it wisely . . . and give it away.

I realized, though, that what I was doing wasn’t teaching her anything. I wasn’t demonstrating to my daughter that her “labor” directly affected how much she “earned” – and, since more than half the time, she wasn’t even getting paid, I certainly wasn’t teaching her how to manage the money she did make.

As I mentioned in a post last week, my husband and I are leading Dave Ramsey “Financial Peace University.” A lot of what Dave teaches is “old news” to me and Rob. We have been doing many of his strategies for years and that is why we felt secure in being able facilitate the class.

But, when we got to the lesson on teaching your children about money, my ears perked up. This lesson was one I, personally, needed to hear. Fortunately, Rob felt the same way about it and we quickly got on the same page – with each other and Dave.

So, I would like to share with you what Dave suggests and what we have done . . . and how it is working so far.

Dave Ramsey’s philosophy on children and money is that they should not earn an “allowance.” He feels “allowance” is too much like “welfare” – as was the case in our home, our daughter was getting her dollar, whether she had chores to do or not that week. Instead, Dave suggests your children earn “commissions”- specific amounts of money for particular tasks they complete.

Now, because our children are members of our family, there are certain chores they must do just because they live here –with no monetary compensation attached to them. For example, Jordan must fold and sort the laundry and carry everyone’s pile to their rooms. She also needs to water the plants and empty the dishwasher. Our four year old son has chores, too. He empties the silverware drawer from the dishwasher, cleans up the backyard toys and carries down the laundry from all the hampers to the laundry room. Our two year old (it’s never too early to start them!) helps me put the clothes in the washing machine, then into the dryer and eventually carries them to our couch, where Jordan will fold them.

There are other chores, however, from which they can earn “commission.” About two months ago, we bought a dry erase board and Rob hung it on the back door to our house. On the board is each child’s name and under it, the chores for that week. Next to each chore is the amount of money they can earn for completing that task. For our daughter, most of her chores earn a “commission” of 50 cents to a dollar. Our four-year-old earns about 25 cents a task. Our poor two-year-old isn’t earning any money yet!

What tasks do we put up there? Well, our daughter has recently cleaned out all of our kitchen cabinets and drawers – taking all the items out (as I sorted through everything to see if anything should be sold or thrown out) and then she used soap and water to scrub the inside of each cabinet and drawer and then neatly rearranged everything back in place. For that, she earned 25 cents a drawer and a dollar a cabinet. Last weekend, I had her do the same thing with my bathroom cabinets. Boy, were they a mess! I don’t think I’ve done that job in five years! Our four year old pulls weeds in the backyard with Daddy and helps carry buckets of dirt and mulch around.

On Sunday night, my husband sits down with the kids and the dry erase board to review what tasks they have completed - he calls that the family "business meeting." Those completed jobs determine how much money they earn each week. With our daughter, she usually has a chance to earn $5 a week. Some weeks she earns it, some weeks she doesn’t.

For arguments sake, though, let’s say she earns all $5. What’s next? We can’t just hand her five bucks and say, “Here you go!” If we did that, she’d blow it all on soda and candy!

So, instead, Rob went out and bought one of those small coupon accordion files. Inside, he labeled three of the files: Saving, spending, and tithe.

If she earns five dollars in a week, she is to put one dollar in her tithe folder. When we go to church, she puts it in the basket to give it to God (actually, in our church, she has a choice of which basket to put it in – either for the church, for the widows and orphans, for the sick, weak and poor or for missions – so she’s learning about giving to others by choice, too). Two of her dollars go into the spending folder and the other two go into the savings file.

Let’s talk about the savings folder. What is she supposed to be saving for? Well, even though she’s not quite eight, she is saving for a car! As Dave Ramsey suggested, we have told her that when she is of “age” to get her own car –we will not be buying one for her. However, if she saves her money from now until then, we will match what she saves and put that towards her first car. So, if she saves $1000, we’ll put in another thousand towards that car. If she saves $5000, we’ll match that amount.

Note: Dave suggests that you put an “up to” limit on this offer. If you don’t, your child could turn out to be the best saver in history and you may need to fork over $20,000 at the end!!

A woman in our class also gave us a great idea. She told us that she has implemented this same plan with her children regarding the car savings account. But, she was worried that once they were of driving age, she wouldn’t have the money to “match” their amount. Thus, as they save their money and put it in the bank, she puts the same amount in at that same time. So, if they deposit $30 into their account, she also puts $30 in their account right then. This way, she won’t need to come up with a huge amount of money that she doesn’t have –and break her promise to her children – when they are ready to buy their first car.

Along those same lines, she also mentioned that if her children ever want to pull money out of that account to, let’s say, buy a video game, she says, “Okay, you can do that, but if you pull out $15, then I’m pulling out my matching $15, too!” She says this usually stops them from pulling out their money because, though they might be willing to spend $15 or $30 at a time, they aren’t willing to lose double that amount from their bank account!

The whole point of this is that we don’t believe in having a car payment. Rob and I have never had one and we want to instill in our kids that it’s important to pay cash for their cars. What they save, starting now, will determine how nice (or clunky) a car they get when they are older.

That leaves us with the spending file. We have given Jordan some leeway here. She can spend that money on snacks or toys or whatever she likes. But, we have also encouraged her to “save” some of the “spending” money so she can buy bigger items in time – nicer toys or clothes, etc. She says she’s saving it to buy a cell phone. (We haven’t yet had the discussion of how a cell phone may cost $150, but you still have the monthly plan to worry about!) Still, she has a goal and she’s working towards it.

We don’t have quite as “sophisticated” a system for our four year old. He has a large, plastic bucket (one we cleaned out after the Costco cashews were all eaten.) His money just gets put in there. If he gets dollar bills, we crumble them up so they look like a lot of money floating in the bucket. Occasionally, Rob will take him to the store and let him buy a drink or candy with some of his money. He, too, takes some of it to church on Sundays to put in the basket. When he gets a little older, we’ll implement a system like we have for Jordan. For now, though, he knows he’s earning money and he can buy “stuff” with that money.

Will all we are doing work to make our children responsible financial adults in the future? We sure hope so! In the meantime, last week I had Jordan’s parent-teacher conference and her teachers told me she does very well on the “money” math units. I said, “Gosh! I would hope so with all the time we spend talking about it at home!”

I am also encouraged by the fact that, on one of the Dave Ramsey DVDs, his teenage daughter spoke about her financial upbringing. She said that, after spending years and years of earning commissions at home – and then, eventually, getting an after-school job – she had saved $8,000 for her car. Her parents matched that and so, at the age of 16, she was able to purchase a $16,000 car in cash – with money she earned! Even at her young age, she knew that was a fabulous feeling!

That’s the kind of feeling I want my kids to have when they grow up.

How about you?


Annette W. said...

fabulous post. Thank you.

Sabrina said...

Teaching kids about money is a delicate thing, for starters parents should be careful when they talk and explain the value of money. Nice share!

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