Teaching Children to Save Money
Henry has been really interested in money lately. He really, really wants quarters for candy machines around town. We choose not to give him quarters on the spot and instead tell him that he can remember to bring quarters from his piggy bank (he solves this problem by turning the knobs anyway–it works more often than you think it would!–and finding stray candy on the ground and putting it in his mouth before we can stop him–it builds his immune system, right?).
His interest in money inspired my idea for his Christmas present this year: a modified piggy bank system that encourages him to save his money for various purposes. It contains five jars:
- Small Change: to spend on small, quick things (candy, cheap toys, etc.)
- Saving Up: to put aside for a larger purchase that takes a little time to save for
- Sharing: to give away
- Car: to save up for a car when he turns 16 (we will pay for his insurance and maintenance, but he will have to buy the car and pay for gas)
- College: to go toward his college savings account (we are saving for this, too, but we want him to have the awareness that it takes money)
Whenever Henry gets money, we will divide it into 10 parts. These 10 parts will be divided up into the jars according to the following fraction:
- Small Change = 1 part
- Saving Up = 3 parts
- Sharing = 1 part
- Car = 3 parts
- College = 2 parts
I’m not sure how Henry will actually get money. In a Montessori home, chores are just something that everyone does–it’s part of how everyone contributes to the family. But I also see the value in him getting his own money so he can begin to learn really valuable lessons related to spending and saving.
Perhaps we’ll just give him money each week equal to his age. We would refrain from buying him things when we’re out and about and instead give him a couple dollars each week so we can sit down and divide it up into the jars.
We definitely wouldn’t be starting this if he wasn’t already noticing money and generating an interest in it. It’s hard to know what approach to take. On the one hand, I really want to give him authentic practice with delaying gratification by saving for a larger item. Research shows that the ability to delay gratification is a huge indicator of success later in life. On the other hand, I don’t want him to generate a scarcity mindset that makes him feel like he needs to hoard his money or I don’t want him to feel like he doesn’t get new things unless he pays for them himself. It feels like a tricky balance for sure.
What are your plans for teaching your children about money?
20 Comments
Caitlinn
Hi! I've been reading your blog for a while but this is my first time commenting.
IMO, the 5 category system seems a bit too complicated for a young child. Henry has yet to turn 3 yet, right? Even for an older child, I feel like starting with a simpler, more flexible system would give the child more freedom to make his/her own decisions about money (spending/saving balance, for example) and end up learning more as a result. The opportunity to makes mistakes and learn from them is really valuable … especially in childhood while the stakes are relatively low. IMO your system doesn't really allow for that.
I do want to say thanks for posting about this though… My son is almost five and has been interested in money for quite a while. It's definitely time to give him an allowance. The truth is that my own aversion for cheap toys and marketing towards kids has led me to delay this for a while. But those are really my issues, which I need to work through to some degree for my son's sake.
Caitlinn
Anonymous
Here is a link to our system. It is a yearly dump and divide in the spring. My daughter actually gave her "give" money to a cancer fundraiser we encountered which felt right as my father was battling the disease at the time.
http://whiningisclosed.wordpress.com/2013/05/22/montessori-ideas-money-matters/
Britt
Gail Vaz Oxlade writes a bit about kids and money. She's got great tips for adults and while I don't have kids yet, I think I'll try to use some of her strategies when I do. I believe it's similar to what you're doing right now with allowance based on age and jars to save in. If you google her name along with kids and money you'll get the link to her site with the posts tagged. 🙂
Sara E. Cotner
Thanks for commenting, Caitlinn!
I totally hear you on the lack of choice. That's the part I'm struggling with. Henry needs to have real choice in order to learn lessons with his money. But I also want to set up patterns when he's young–patterns that hopefully turn into habits, like saving for college and a car–especially since the more he saves now, the more he will have later because of compounding interest.
I'm thinking about dividing everything into quarters instead of 10ths, letting him distribute them according to the ratios but then letting him decide what to do with the extras. If we gave him $3 a week, he would have two quarters left over every week that he could decide freely. I'll have to think about it a little more. Thanks for being a thought partner on this stuff!
I'll check back in about how it's going after a couple months!
Sara E. Cotner
Shoot! The rest of you commented while I was responding to the first comment. I will be back! I have to finish a really big deadline. Sorry! Thanks for chiming in!
j loves j
Growing up, my parents gave me an allowance based on my age. In addition, if I did some extra "work," like helping them at their family-owned business, I'd get a little extra as a bonus, which reinforced the idea that you have to work in order to earn money and that it doesn't come out of nowhere. I know Henry's young, but I'm sure you could find ways to do something like that if he helped with a task that's not on his everyday chore list. Not saying it has to be a big task or a lot of money, but just something to relate work to wages, if that makes sense. And then of course tie it all back to the savings aspect. I don't have kids now, but if I do eventually, I think I would go this route. I really think it's important to teach kids about saving and earning from a young age. I'm thankful my parents did that with me because it's definitely shaped my saving and spending habits as an adult.
andee
I would worry about "giving" a child money. Does it send the wrong signals? I guess I am more of the mind set that children should "earn" money so that they can learn the correlation between working = rewards and choices. But that is the opposite of chores just being part of the family dynamic. That's tough.
n10sgrrl
The Simple Dollar has great advise for teaching young children about money – everything from budgeting, to saving, to giving, to allowance. The author has 3 young children (3, 6 and 8 or so) and talks about his approach with each child varies according to age.
http://www.thesimpledollar.com/category/parenting/
Much of what he says you mention in your post, he just flushes it out more.
Sarah Kopper
This discussion is really interesting as we have yet to cross this bridge with HP since he's only 18 months. Lots of food for thought.
Growing up we could either divide our money into thirds (spending on whatever / saving for something "big" / college) or in half (spending on whatever / college). It was our choice. We also got WAY less money than a dollar per year of age. Personally, I don't want my three year old to have access to $150 in a year, though I know parts of that are saved for the future. I thought $10 was SO MUCH MONEY the whole time I was growing up. We got something like $1.50 a week all through elementary school. In my experience, having access to less makes people value it more–or at least it did for me.
As for earning money, we had chores we had to do regardless–like dishes and keeping our room clean, but if we did extra (like the whole family's laundry or mowing the yard) then we could earn a small amount of money.
One final note–I did think it was interesting that you are already having Henry save for a car. What if he doesn't want a car when he turns sixteen? Lots of kids now are choosing to delay getting their DLs and owning a vehicle. What if Henry is one of those kids? What happens to that money? It seems like by asking him to save for a car you are putting the idea out there that he will both need and want a car when he turned 16 when he otherwise might not feel that way. Just a thought.
Thanks for posting this–it's not something I've thought a lot about in concrete terms for my son.
Beth
This is interesting. I have read little to nothing about how to introduce money to kids, and it isn't something I have worried about. My 1st grader is extremely interested in money and has a huge pile under his bed. I don't even know where the money has come from. My Kindergartener could care less about it. My gut feeling (based on absolutely no reading or evidence) is that I don't want my sons to be worrying about money at their age. I feel my job as a parent is to provide for them what they need. If they wanted something that I wasn't willing to buy them, I wouldn't want them to go and buy it with random money they have accrued. I don't believe in paying children for being helpful around the house since that is just being a nice, thoughtful person. Another family goal is to completely provide a college education for my children. We put any money given to them in their college accounts and of course save also, but I would never expect a five year old to be saving for college. Now that doesn't mean we don't talk about money and try to talk about the value of things. We talk a lot about how we try to give away as much money as possible to charity, their school, etc. They hear me complain about how cold our house is because it is expensive to heat so we choose to set the thermostat low. We talk about why we drive a car with 160,000 miles on it and have no intention of getting another car, etc. Writing this, I think I want my children to understand how to give their money away, more than learn how to save for a toy they really want. I am thinking that I am going to really ask them to use their own money to give a little to church each week. I think that is the real money value, learning how to give some of it away, even when you only have a little.
Solla Carrock
I started giving my daughter an allowance when she was about 3 because I couldn't bring myself to buy her some tv advertised toys she wanted, but I thought she should have a chance to make some of her own choices. I think she got a quarter for treats and a quarter to save. Later I started giving her a book allowance, and I've always been glad of that idea. Portland has Powells, selling new and second hand paperbacks and $10 a month bought quite a few books.
Anonymous
I think a car and college are too far away for a 3 year old to understand. Maybe you could just have him keep some, save some, and share some.
Angela Mae
I just wanted to comment in thanks: Sara, I really appreciate your post! Also the subsequent comments have been really informative as well. While I don't have much to add about ways to introduce money to kids, I can say that when I was a kid I would have really benefited from this kind of forethought and encouragement from my parents. I remember feeling really let down as a teenager when I looked back and realized I had never learned and had no idea how to learn how to save and manage finances.
Setting aside money to give is especially inspirational!
Several folks have noted that a car and college savings may be a bit early for Henry's age. That may be so, but I think it's great that those are things you are thinking about. Those are two specific things I really regretted not knowing how to save for when I was finishing high school.
Between the post and the comments there is SO MUCH great information here! I've really enjoyed combing over it and will definitely check back in a few years when my baby is ready to learn about money.
becca117
Sara, thanks for your comments on this. Especially noticing Henry's interest in money and reacting, versus deciding on a set age that money should be introduced.
Everyone has to do it their own way with their own priorities, but something that hit me when I applied your thoughts to our own family (as we await the arrival of our first) is that although education is a top priority, college isn't necessarily the only means for that. Especially in these days when college is so expensive. I know for our parents age, college wasn't a given and therefore was the goal of every parent to provide a college education for their kids (and how grateful I am for that) but since the costs of colleges have increased so dramatically and I think the worth decreased, it seems that when Henry is old enough, college may not make sense. There are so many more ways to achieve higher education. Also, college isn't always for every personality, and to set up the standard that it is the only way to fulfill "his" lifelong savings seems kind of limiting. I know many will disagree and say that college is a must, but just thought it worthwhile to question. Same goes for a car. Even though a car is something society tells us we need, there are so many alternatives out there. Especially for a green, thrifty, conscience family like yours, in 13 years a car may not be a good priority. I much prefer the "savings" goal for something non-specific rather than limiting, even if he fully doesn't understand at his age now, to what I think his goals should be to save for.
Annalisa
I do think that might be too much splitting up for a 3 year old to comprehend. I think it is very important to teach delayed gratification especially with spending and saving.
We have a piggy bank for our 2.5 yr olds discriminatory use. She gets loose change for doing something, birthdays, and sometimes just because. However, we started ROTH IRAs for our kids for the real savings. I don't have them contribute or think about it at this age because they are too little to think that far. The benefit of the ROTH is that it can be used for education and they pay no taxes on gains in the market (do you have any idea how much a few thousand dollars a year starting at the age of 2 will be worth at 50?! tax free). When they get older we'll let them choose individual stocks and follow how it does.
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Elizabeth
We have been thinking about an allowance for years (our child is now 9), particularly the balance between the importance of earning money and the importance of doing work as a part of the family without being paid for it. He is obviously quite a bit older than many of the children mentioned here, so he can better understand the logic behind our method. In the end we decided that we would not tie the money with his normal household chores, but we would look at it more like a grown-up salary…he will get his allowance every week no matter what, but if we see he is beginning to misbehave or not do what is expected, we will re-evaluate and could change the amount or frequency. He is in 4th grade, so he gets $4 a week, which he spreads out across 3 jars–"spend," "save," and "give." One dollar goes to the save jar, one to the give jar, and two to the spend jar (which is actually a wallet so he can carry it with him if we go out). He decorated the jars with ways to spend the money (e.g. the "give" jar has a picture of elephants at the zoo since they have a big elephant conservation campaign that he is interested in). We have only implemented this system for about 6 months, but it is working well…having regular spending money (that is a reasonable amount, rather than the large amounts of money he used to get from family members on holidays that had no meaning to him)has really helped him to prioritize his wants and plan for future activities where he knows he may want to spend money.
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