Teaching Children About Money
It had been some time since we had the lesson about pennies, nickels, dimes and quarters. Back then you could get 5% from a savings account. Our son had his own savings and 529 accounts but he didn’t know about them. I taught him that if you let the bank store your 20 nickels, they would give you one “free” nickel at the end of the year. He seemed to like that idea and wanted in on the deal.
The Money Machine
Some years later, my son was about 9 or 10 riding in the back of the car, he informed me he wanted a Nintendo Game Cube. I told him we couldn’t afford to buy him whatever he wanted. He quickly replied “Just go to the money machine.” From his prospective this made perfect sense. For his whole life he watched his parents pull up to an ATM machine, push a few buttons and walk away with cash.
It was then I realized it was time to have a serious talk about money. I told him it was his mother’s and my job to go to work and earn money. Our money was put in the bank and we took it out to pay for our house, food and clothes. He had an important job too; it was to do well in school and be a good citizen.
The System
When we arrived back home, we got out the basket he kept his money in. He had a few dollars from doing chores and some birthday money. I told him he needed to manage his money so he could buy his own game console and the cartridges to go with it. I told him he needed to divide every dollar he earned into 5 categories.
I explained 10% was for the Church, 15% needed to go for Savings to never be touched. 25% to a Long-term goal like a game cube. 25% to a Short-term goal like a game cartridge. The balance, 25% was for Spending money like a book from the school store or a candy bar.
Motivated by the desire for the Game Cube he spread his money on the table and counted. He then retrieved 5 envelopes, one for each category. In his own handwriting he labeled the envelopes and their percentages. He got out the desktop calculator and went to work. Not knowing how to exactly divide the money, I suggested he round up on the savings and long-term and let the spending money envelope be a little short.
After devising this system, he was all about filling the envelopes. He wanted to get paid for everything. His mother and I had to inform him there were some jobs that were expected just for being part of the family. He would not be paid for cleaning his room, clearing the table etc. He could however propose extra work that would go beyond basic chores. These extra chores were often overpaid to encourage his efforts😊
A Parent’s Reward
After each sizeable “payday” he would get out the calculator and divide the earnings. Once the savings envelope reached a worthwhile amount we went to the bank and he made his very first savings deposit. This was a teller window event with passbook and all! The first time he placed his own earnings in the church offering plate you could just see him beam! The system worked, he was motivated to earn and taking responsible actions with his money. He eventually bought the Game Cube and was flush to buy the necessary cartridges.
The Teenage Years
We were lucky, our son didn’t crave designer clothes, money for weekly movies or high-cost sporting gear. Our focus was on education and he knew his job was to get the best grades possible. He knew this would allow him to attend any university he selected. About the time he turned fourteen I made him an offer. I proposed any money he could save toward a car I would match before he turned sixteen. I assumed he would save around $1,000 and we could find a $2,000 beater to get him through high school. I was wrong, he saved $2,000 and we started shopping for a $4,000 car. Living in a rural farming community a $4,000 car stood out as one of the nicer in his school parking lot!
After turning sixteen he wanted to get a part time job. He had the car and good grades so we encouraged his pursuit. I’m not sure he still used the 5-envelope system but I didn’t worry about his finances as long as he was saving. His account balance was growing and his spending in check.
Attitude Money
This is when we discussed Attitude Money. I suggested he never let his bank account balance drop below $5,000. At first, I could see he wondered where I was going with this concept. I asked him “Doesn’t having $5,000 in the bank make you feel good?” He smiled and agreed. I said if your car’s transmission failed and cost $2,500, it would be a bummer but you could maintain a good attitude because you had the money to cover it. I suggested he might know some people whose life would be thrown into complete chaos if faced with such an unexpected expense. He understood.
He bought into the concept and kept his attitude money through his time at university. We agreed to split the cost of tuition and he paid for every other term. During his senior term he came to me a bit concerned. He told me he didn’t think he had enough money to cover tuition. We went over his finances and I learned he had more than enough to cover the costs. What was the problem I asked? He said he wouldn’t have his full attitude money when he graduated! I knew then he was going to be just fine😊
1 Engineer On FIRE