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Money Matters: How I Am Teaching My Kid Financial Literacy

Understanding money is a vital skill for any person, and one of the frustrating things I recognized as I became an adult was the lack of education growing up regarding this necessary ability. I didn’t receive an ‘allowance’ per se, I was given money on occasion, but it wasn’t consistent or task related. Growing up in an immigrant household, money was a touchy subject and I was often reminded of how lucky/blessed we were to have what we had compared to the little my parents had growing up ‘back home’ in the Philippines. I often overheard the conversations about money, budgeting and such but I didn’t get a sit down conversation. Any money I received for gifts was, when I was younger, ‘saved’ for me by my parents, and then later on I basically had free range to do whatever I wanted with it.

I don’t blame them, money wasn’t a conversation most people had with their kids back then and as a family that worked really hard to have ends meet they were preoccupied with getting things done. Mom worked at 2 different hospitals, Dad worked evenings. Also, money management wasn’t something they were taught either. This is a generational issue. Money, historically, was a taboo subject not discussed with kids and so most people weren’t educated on things like money, credit, debt and budgeting. We were all sort of just expected to figure things out as we got older.

Crazy, eh? if you think about it. A VAST majority of us were essentially thrown into adulthood with a very rudimentary understanding of a key aspect of survival in the modern world. We were taught biology, history, English and art but not an in-depth understanding of how credit card interest works or how to build a budget.

I stumbled upon a deep interest in money and investing when an ex-partner’s father gave me the book, Rich Dad, Poor Dad. I read the entire book in one night, and to be honest it changed the trajectory of my life. Despite it sounding overdramatic, it’s true.

I knew that I’d always ensure financial literacy would be a part of my child’s learning from an early age, but I never really gave it some thought…mainly because before kids, why would I?

My son is now 5 years old and we’re discussing allowances and I’ve created a program that I’d like to share, hopefully it could be useful to others!

Note, it’s not perfect, but nothing in parenting ever is.

How I Introduced Money to My Toddler

Before I go through my Allowance Program, I’d like to mention how I introduced money to my son at an earlier age.

Money may seem relatively straightforward, or at least I thought so, until I had to explain it to a 2 year old.

I essentially explained a bartering system. I would show coins and explain that one coin could be exchanged for something. Not including value (Dimes, Quarters, Nickels, Looneys etc) allowed me to keep it as simple as possible. We focused solely on this concept. To reinforce it, I purchased an old school gumball machine and we filled it with, again, M&M’s.

Our son was able to see quickly that coins = treats.

How he earned coins was through simple ‘chores’. Cleaning up his toys, picking stuff up, etc. Money associated with working is a very traditional concept that we continued, until recently.

This worked to help create a simple understanding of money. As he grew older, we abandoned the gumball machine and introduced values and saving to get larger items such as Pokemon cards or toys.

A Change in Perspective

Recently I came across a great book called “the Opposite of Spoiled: Raising Kids who are Grounded, Generous and Smart About Money” by Ron Lieber that gave me a great set of tips for teaching my kid about money. One of the concepts that I found very interesting was using money to learn about budgeting is the goal BUT it’s very difficult to tie that to WORK without it becoming all about WORKING FOR MONEY.

Essentially, by tying money to earning it, it becomes more difficult to teach about budgeting and financial literacy because you have to also teach about WORKING for money.

This was interesting, because it makes sense. To teach my kids about money, they would need to have some. In order to have some (in a traditional method) they’d have to work for it. If they don’t work for it, I can’t teach them about money. It was a cycle.

Also, my wife was also reading a FANTASTIC book called “Hunt, Gather, Parent: What Ancient Cultures Can Teach Us About the Lost Art of Raising Happy, Helpful Little Humans” by Michaeleen Doucleff which brings about a very interesting concept that discusses NOT tying household chores to money as it creates an entitlement of expectations. Essentially, when you tie chores to money, you say to the child “the upkeep of the house is a job in which you can CHOOSE to do.” We didn’t want that. They are a part of the household, and therefore cleaning up after themselves should NOT be a paid service. I don’t get paid to clean, why should he? I don’t want to create a mentality of ‘clean is only something I do if I get something for it”.

So with these two things in mind, I came across the following challenges:

  1. how do I teach financial literacy
  2. how does my child get money to get that literacy
  3. how do I uncouple work with money without teaching them that they don’t need to work to get paid?

The last part was a bit of a struggle and honestly took me a few months of thought to work through. Here is what I came up with.

An Unorthodox Move

First and foremost, I did not want my son thinking that he only had to do work around the house if he got paid for it. So I decided to give him an allowance every week for a minimal amount not attached to any work. This would mean every week he would get, for example, $2. Essentially, it’s universal income, but with this method there’s the concern of creating entitlement. A child needs to understand that work is necessary. Because it is in the real world to have money you need to work. To address this, we kept the amount low enough to not be able to rely on it when he wants to purchase items, but high enough to have value. This way he gets money and I can teach him how to use this money but if he wants to buy anything in the real world he doesn’t have enough and he’ll need to delay gratification by waiting until he’s saved enough. This allows me to create another opportunity. If he would like more money I am willing to pay him but it must be a job that is outside the regular work around the house. So for example cleaning his room, doing dishes, fixing his messes are all unpaid responsibilities of his. Regular expectations for a 5 year old.

Help Wanted

Additionally, if he wants to earn more money, we can provide other jobs which pay better. For example he can do yard work that tends to be harder like pick dandelions or help me with home administrative stuff like shredding documents or filing or help mom with work stuff. By offering these jobs, he has a chance to earn more money than his standard “allowance” . Through this system we hit all the goals we were trying to create:

  • We teach him the importance of hard work and earning for money
  • We can teach him how to budget, save, and be generous and
  • We maintain that he’s a member of the household and has a responsibility to keep the house in order without an expectation of being paid.

Save, Spend, Share.

In the Opposite of Spoiled Ron Lieber gives a fantastic structure of teaching kids how to not only save money, but also how to be generous which I implemented in my own home. So, when my five year old turns six (giving a lead up to a change we found makes the most sense for kids) his allowance is $2 a week. We’ve also given him three jars: one is labeled spending, the other one is labeled saving, and the last one is labeled sharing. Sharing is charity. This setup was taken directly from the book.

With his allowance of $2 a week, he must give $1 to saving (50%), $0.50 to sharing (25%) and $0.50 to spend (25%).

These labels allow me to teach him the importance of budgeting, generosity, paying yourself first, a concept I learned from Rich Dad, Poor Dad.

A few more details:

  • This division of funds also applies to any money received from birthday presents and or gifts.
  • He is allowed to spend what in his “spend” jar whenever he’d like, however he’d like (within reason)
  • His “savings” will be deposited into his own bank account (which we will open for him) at the end of every year.
  • The “sharing” money will be taken out and used to either give it to a charity directly, or he can spend that money on items that need to be given to those who need it. Such as school supplies or gifts for toy mountain etc., etc.
  • Allowance will be raised by one dollar every year. At six years old, when this starts, it will be two dollars and at seven he will make three dollars a week, at eight it will be four dollars a week and so on and so on.

Ultimately, I’d like to introduce to him the concepts of investing as well as credit, but for now, until he is older, this will be the way things are done. Until I find something better.

Learning about money at an early age is, in my humble opinion, vital to helping my child grow to be a successful adult in the world. Money, no matter your feelings about it, is a part of society and knowing how to handle it is a necessity. The goal is to ensure my kids financial situation stays in his control as he gets older, rather than being controlled by his financial situation as many people often find themselves when they enter the ‘real world’. As Macklemore once eloquently put it, “make the money, don’t let the money make you”. Although his meaning is a bit different, it still applies here.

So what do you think? Do you have a system that works for you? Are you going to try to implement this one? By no means do I believe that this is a perfect set up but it’s the best that I can figure out hopefully it teaches him a few things.

Comment let me know what you think!

Thanks,

Kenners

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