From the early years and beyond children should be taught these two truisms:
- Money does not grow on trees AND
- You don’t earn money just for breathing! Making money requires work.
Keep in mind that you will likely repeat these words regularly (I know I do).
The envelope system
While you can do lots of things with money, all expenditures fall into three (3) categories: Spend, Give and Save. Reinforce these categories with your children at a very young age by introducing the envelope system. This system helps children visualize dividing their money. Each category is assigned a percentage. Children have no expenses or debt, so the largest percentage will likely go to the spending envelope. We set our daughters categories where we want her to continue the rest of her life; they are 70% Spend, 10% Give, 20% Save. You decide for your children. The goal is to help them form the habit of Earning money, the practice of Saving money and the heart for Giving money. We want our children to have a strong work ethic (the earning habit), never be monetarily broke (the save habit) and never be selfish (the giving habit).
Let’s face it, we don’t have to teach them to have a heart for spending; our culture bombards our children with things on which to spend their money. The habit training around the spend category is to help them plan their spending. Have them list (write on the envelope) things they want to buy and when they have the money they buy from that list. This training keeps children (and dare I say adults) from impulse buying or wasting money.
The savings envelope has a purpose and a list as well. Every child wants something, and nearly everything costs money. Young children have no urgent need to save, so their savings teaches delayed gratification, they can save for costlier items.
Reinforcing the truths
While a small percentage of children are born into money and will never be in a position to have to earn money, most of us don’t fall into that category. For our young children, we have to create opportunities for them to make money. In the early years, the money your children earn is yours. Be sure your budget reflects the money you plan to pay your children.
The truth: Earning money requires work. Some work suggestions to consider:
- For the very young: help to pick-up after a younger sibling or deliver folded laundry to the correct bedroom.
- A bit older child: clean out the car or organize a junk drawer.
- A much older child: bigger jobs like wash and wax the car, clean the garage or basement, make the grocery list or clean the outside of ground level windows of the house.
The activities you choose will be unique to your family, and as your children grow those jobs will move outside the household. However, each of these opportunities reminds our kids of the truisms: Work equals money, money does not grow on trees, and you do not earn money just for breathing.
Viewpoints differ. Life happens. Addressing the issues.
Gifts and ‘found’ money– Birthdays, grandparents, finding money and any other reason. Sometimes strangers give your children money just because they are cute! Why, you ask, must they ‘Give’ and ‘Save’ this money? In a word, consistency. To form a habit, consistency is a must. Remember the goal is to teach our children positive habits so they will never be broke (the save habit) and never be selfish (the giving habit).
Allowance– For our family, allowance is built on the truisms: work equals money, money does not grow on trees, and you do not earn money for breathing. However, allowance is a personal family choice. In our household allowance is not granted, a paycheck is earned. I encourage parents to break the tradition and ignore the naysayers. Nothing good ever comes from children feeling entitled, which just handing them money can create.
Another highly charged area – paying for grades. My opinion, which is not shared by my husband, is that I don’t pay for grades. The grade itself is the benefit. Grades are rewarded with praise for hard work. My only advice, if you do decide to pay for grades, is to be consistent – don’t alter your pay for grades plan or not pay if you don’t have extra money.
The teenage years. When the children are still under your roof but think they are grown! Before we directed their money for them, it is okay to loosen the reigns and observe how they manage their money. While you can still encourage the habits of saving and giving, it’s more difficult to require it. This is where the strong foundation you have laid is put to the test. Challenge them: allow them to open or manage a savings account, with a savings goal in mind. Encourage their efforts to save for a want – a class ring, the prom, even a car. Give them a clothing budget to manage. A checking account won’t be available, without you, until they are 18 years old, but until then they can manage a fictitious checkbook using the money in their ‘spend’ category.
Your habits. Most importantly, all your financial training will be lost if you, the parents, are not modeling the proper financial behavior.
Guest Contributor: Regina Harris, AFC®