Remember when your parents used to give you free money and called it an allowance? Did that money burn a hole right through your tiny little pocket? Keeping up with the latest video games, and other toys-of-the-moment was expensive, but oh-so important for that playground street cred. And if you're old enough to remember the days before digital music, you likely remember heading straight to the record store with your allowance to buy an entire Hanson album just because you loved 'Mmm Bop' and thought the drummer was cute. We are, or can be, a lot smarter with our money now.
Studies show that routines and habits around responsibilities are pretty ingrained by the time your child enters third grade. Yes, that means if your child is blowing through their allowance at 9 years old, unlearning that habit is going to be hard work. That's why we're big advocates of instilling smart money habits in your little ones from day one… okay, maybe not day one, but at least by the time they're old enough to pick out a candy bar at the grocery store.
One of the simplest ways to instill a habit of responsible spending in your child is to always discuss their allowance with them, and make sure they have a simple plan for that money.
Spend, Save, Share
The Spend, Save, Share method is great, because it teaches children 3 important concepts:
- Money is finite
- The value of delayed gratification through saving for the future
- The importance of giving back
Another reason we love Spend, Save, Share, is because you won't have to adjust the lesson as your child gets older, it's a smart money mindset that will carry them into adulthood.
First things first
When you're teaching young children that money is finite, physical money and piggy banks are the gold standard. If your child isn't in high school yet, we recommend getting them 3 separate piggy banks, one each for 'spend', 'save' and 'share'. Once your child is older, this method can easily translate to the digital world by using different savings accounts.
Spend
We recommend starting with 50% of the allowance going into the 'spend' bank. This valuable lesson gets children into the habit of living below their means. If they never get used to spending their whole allowance, they're far less likely to go into debt due to poor spending habits as adults.
Save
Next, encourage them to save 40% of their allowance in the 'save' bank. This can go towards saving for a high-end item, as well as toward longer-term saving. You might be thinking, "They're just kids, let them have their fun. 40% is a lot to expect them to save." The truth is, kids are typically happy with whatever it is they're accustomed to, and saving a large portion of their earnings is a life changing lesson to instill in your kids. Just imagine if you had invested 40% of every paycheck you ever received - early retirement would seem like a breeze.
Share
With that last 10%, get your kids excited about giving back to their community by choosing a cause that they care about. This is an important lesson in gratitude, and also develops the generosity to help others who have less.
Spend, Save, Share in Action
When your child is younger, help them by assigning a percentage to each piggy bank, but don't stop there. It's important to explain each of the 3 concepts to your child, allowing them to understand why this is important.
When they're a little older and beginning to grasp basic math, encourage an open dialogue and give them room to make these decisions for themselves. After all, we learn so much more by doing things ourselves and making our own mistakes than we do by simply listening to what authority figures tell us to do. (Every child who has cut their own bangs is living proof of this fact.)
For example, if your kid earns $5 a week, take them to the store and show them all the things they can purchase in the dollar section. Then show them some $5 dollar items, and then some $10 items. Explain how with a little saving they can treat themselves to a candy bar or something from the dollar section today, and still be able to put a little money away for that big ticket item. If they're saving up for something in particular, help them stay motivated and track their progress with this
free downloadable savings chart. When the time comes to make the big purchase, allow them to pay themselves, using cash. You can help them count out the money at the register. Using physical money helps to visualize the fact that money is finite, and paying themselves will instill a sense of pride and give them their first taste of what financial independence feels like.
Pro Tip: Once your child is in high school and thinking about college, encourage them to allocate a portion of their savings to their own 529 plan by agreeing to match whatever they contribute. If they need a little more encouragement, remind them that the funds in their 529 plan can go towards a nicer laptop, housing, and even study abroad programs! Also, remind them that a contribution to their own 529 makes a great gift for their parents. Now that's living by example.
9 Days of Giving
From December 16th to December 24th we'll be matching 2 gifted contributions every day! So
invite your loved ones to contribute to your child's future education this holiday season for your chance to double your gifts!
Not sure how to ask? Check out our
last blog.
We'll also be sharing family friendly holiday activities on our
Instagram profile, so make sure you're following us and join in on the fun!
