Posted on December 10th, 2021
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.
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.
The Spend, Save, Share method is great, because it teaches children 3 important concepts:
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.
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.
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.
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.
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.
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.)
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