When my daughter (let’s call her Sunshine because, hey, she brings the light in every day) was 6, I started her on the path to savvy money management. Her first step was to accompany me to a bank where we opened a savings account. The account was in her name but connected to my personal account so I would be able to monitor all transactions.
Next, she was given an allowance because, as Sunshine so astutely pointed out to me, what’s the point of having a bank account if you do not put money in the account. Owing to her tender age, and the fact that the Bank of Dad would be bankrolling her for some time to come given sky-high unemployment numbers among five to ten year olds, we agreed upon $2 / week.
At this stage of life, how much money I gave to her was not hugely important (that said, I kicked around the numbers, vacillated between $1 and $2, and eventually settled at the upper end, knowing the exorbitant cost of candy these days).
The purpose of the allowance was to teach her, little by little, about handling money. I figured that she knows how to floss her teeth, tie her shoes, and count beyond 100 … so its time to start learning another practical skill that will benefit her throughout life: saving and spending money.
And I wanted Sunshine to learn with her own money, exercising her judgment, taking responsibility for decision-making, learning from her mistakes. Sure, I was there to help out as needed but she needed to “do” for her self. Because that’s how we learn best: by doing for our self. And when we take care of our self we empower our self. Not only does personal empowerment make us feel good and competent and strong, it sure helps with navigating the corners, straightaways, and ups and downs of life.
Empowerment means not simply gaining power, but continually orienting one’s life in the most positive direction.
A self-motivated positive change in one’s inner life creates a change in one’s destiny. This in turn beneficially impacts the destiny of one’s family and, ultimately, one’s community.
Rolling in Dough
So once a month Sunshine and I trekked to the bank to deposit her allowance money. Most often, she hadn’t spent a cent. Turns out she was, and still is, a natural saver. Of course, Sunshine was also wily enough to know that she didn’t have to dip into her pocket because Dad is a sucker for buying her candy and toys.
When she had accumulated more than $50 (her balance buffed up by cash birthday gifts from relatives), I said to her,
“What do you mean?” answered Sunshine.
“You’ve got all this money, right? Well, what are you going to do with it?”
As a parent, my role is not to dictate. I’m not here to tell Sunshine what to do with her money. But I do try to give guidance. Because my goal is for her to be comfortable with managing all aspects of money, meaning saving, spending, investing and sharing. And the only way she’s going to become comfortable is by taking responsibility for her decisions.
In the guidance department, my rule of thumb works like this: money is apportioned among three imaginary buckets (for adults, a fourth bucket, investing, is added):
When money is received, it’s placed into each of the three buckets, ideally in equal parts. This is a simple way to provide money management parameters.
That said, the amount to be deposited in each bucket may be a conversation waiting to happen. For example, if Sunshine were saving up to buy a scooter, then we would talk about her savings goal, how best to get there, and how contributing more to the savings bucket would impact available spending and sharing.
The benefit of setting savings goals is huge. It helps kids ‘buy in’ to the value of savings, and has the positive effect of limiting spending and reinforcing the notion of becoming a conscious consumer (i.e., thinking about each purchase and the effect spending money will have on savings, sharing, the environment, etc). If kids start thinking this way about money at a young age, they will most likely carry this perspective forward into adulthood.
#1. When To Start Teaching
The sooner the better. Kids are more receptive to your ‘lessons’ before adolescence strikes, a time when growing brains tend to go wonky and haywire, and those lessons you used to teach are now perceived as nagging, boring lectures. Still, regardless the age, it’s never too late to start.
The little ones should learn that money is a tool. It’s used to satisfy needs and wants. And distinguishing between ‘wants’ and ‘needs’ is essential if you want to achieve financial freedom one day. (http://buddhamoney.com/money-and-happiness/day-two-enter-the-buddha/)
Thinking in terms of wants and needs when deciding whether or not to make a purchase sets the stage for minimizing impulse buys and, at the same time, encouraging delayed gratification (http://buddhamoney.com/money-and-happiness/willpower-leads-to-wealth/).
The fewer impulse buys, the more you stick to spending on ‘needs’, the more money you have to put toward savings. Kids who learn this sort of self-discipline morph into adults who realize that freedom comes from living within your means.
My daughter absolutely adores animals so she’s been making charitable contributions to local animal shelters. Knowing that her gift helps to provide food, shelter and care for animals makes her feel amazing. And she’s learning not only the value to others that comes from giving, but also the intrinsic reward she receives through the act of giving.
Let your kids fall down. And teach them to get back up. Because there are no mistakes, only experiences from which we may learn. And when we’re talking about money, it’s best that mistakes be made when kids are young, still under parental care, when damage will be minimal. They will learn from their mistakes and become better money managers as adults.
#6. Credit Cards May Be Dangerous
When young, say under 10, most kids don’t immediately grasp how credit cards work. They don’t get that three or four weeks after your purchase is made, you have to pay the lender. And they certainly do not know anything about exorbitant interest charges so kindly added to your account when payments are overdue.
Kids should be taught about the perils of credit cards, of spending money you do not have, of the price you will pay for buying what you cannot afford in terms of debt, stress and, owing to interest payments, stopping your self cold on the road to financial freedom.
#7. Pay To Play
When Sunshine was six, her $2/week allowance was tied to making her bed on the weekend and clearing her dishes from the dinner table. Because I didn’t want her to grow up with a sense of entitlement. And I wanted her to experience the reward that comes from giving back, of being a good citizen of the BuddhaMoney family.
Today, my daughter is fifteen and remains a conscious saver. I’m guessing that part of this is a result of what I’ve been teaching her over the years and part owing to who she is, i.e., someone who appreciates what she has and doesn’t crave ‘stuff’.
Still, she spends money on clothes, movies and music … typical teenage things. She does so knowing how much is in her bank account (she has access to her account online), how much she wants to retain in savings, and what is a reasonable amount of spending.
Sure, she’s still young but she’s on track to becoming an adult who will not dig debt holes for her self; who will manage money responsibly and enjoy the peace of mind that comes from maximizing savings, limiting spending, and giving back.