Most parents know that they need to teach their children how to manage their money. Perhaps it’s because they have had to learn the hard way through their own mistakes because their parents did not pass on the information to them. Maybe it’s because they have struggled financially for a long time. It could be that they (like many of us) are deeply concerned about the nation’s consumer debt problem (currently over 1 billion) or that they are still trying to pay off their own student loan debt (also over 1 billion in the U.S.) and want to spare their children the same experience.
Whatever your reason, it’s a great thing to teach your children about money management! But when should you start? How should you go about it? Is there a right or wrong way for kids to save money?
Like most things, I guess that depends on who you ask.
My name is Charlotte. I’m a divorced, homeschooling mom of two. My son, Price, is 21 years old and my daughter, Eva, is 18. Eva has one more year of high school so I’m almost a retired homeschooling mom!
I don’t really have any claim to expertise in the area other than the many years of being a mom and wanting to be purposeful in teaching my kids how to manage their money. The reason this was so important to me is because of my own dear parents. They worked very hard to help me learn how to be financially savvy and I wanted to pass those lessons down to my children as well.
The Envelope System:
When the children turned 5 years old we gave them three envelopes. We had them write ‘spending’ on one, ‘saving’ on one and ‘giving’ on the other. I’m pretty sure that we started out giving them $3 a week and we required them to put something in each envelope. We explained that it was important to set aside money to save and to give to our local church but that it was also important to have money to make needed purchases. We wanted them to understand from an early age that they needed a balance when it came to finances.
As the children got older we increased their allowance when we could and always gave it to them in one dollar bills. This allowed them to distribute the money how they wanted although we still required them to put something in every envelope. At times they might want something special and would create an extra envelope just to save for that item.
We did not connect their allowance with chores or behavior. (Although there is nothing wrong with doing so.) We decided that as a family we would work together. This meant that everyone had to help out around the house with chores and everyone got a share in the income of the family through an allowance. The system you choose isn’t all that important (in my opinion) but consistency is key.
To this day both of my kids use the envelope system in some manner. Now that my son is working and living on his own he tends to use his debit card rather than a cash system. However, when saving up for something special he does still use an envelope. Eva still uses the envelope system to budget all of her money at this point. She has even started her own personal finance website just for teens called TeensGotCents. She talks all about how teens can start their own business or get a great part time job, how to go to college debt free, and how to shop smart and get the very best deals.
Remember, the method used really isn’t the most important thing. Be consistent. Give your children their allowance regularly and on time. Sit down with them and talk things through as they decide how much to put in each envelope. You may be amazed at how much this will help them as they approach adulthood. Obviously you should be modeling good financial self control in front of your children while being transparent about mistakes you’ve made.
Oh – and one other thing. Don’t be afraid to let them make mistakes. I can’t tell you how many dollar store toys were broken on the day they were purchased before my kids realized that you get what you pay for! Let them make mistakes while they are young and suffer the (fairly small) consequences so they can really learn. Much better now than later!
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