A Real Mom's Guide to Teaching Kids About Money

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We pay our three oldest kids for the work they do around the house.  I know that a lot of people are of the opinion that children should contribute to the family responsibilities without reward.  I understand that argument and I agree with it in a lot of ways.  The only problem I have with it is that you miss a great teaching opportunity when you don’t allow your young children to earn money.  I didn’t learn how to handle money responsibly until I was an adult and I still have impulse spending issues.  I want my kids to know how money works while they are young so they won’t have to learn it the hard way later on in life.

My children do not get an allowance.  The economic structure of our home is reflective of actual economics.  You work you get paid.  You don’t work you don’t get paid.  They must earn their money.  As I mentioned in a previous post, we don’t do chore charts; so how do we keep track of what our children earn?

I keep it VERY simple.  I pay a daily salary for each of the three older children Monday through Friday.  If they clean, practice piano, do their school work and are pleasant, helpful and generally obedient throughout they day they get paid.  If they are willfully disobedient, are destructive to property, are the source of continued contention, or physically hurt a sibling they do not get paid.  My kids are human so of course they make mistakes throughout the day, but one great act of defiance will immediately mean they do not get paid for the day.  Each of my kids have tested this and they have each learned not to mess with me (because I would rather keep my money).

On the weekends I get slave labor :)

I have found this system of “money for general helpfulness” to work fabulously for us.

They can also earn bonuses for work above and beyond the call of duty.  For example, Lucy will occasionally earn a bonus by keeping the boys happy and occupied so I can focus on something else for a while.  She can also earn a bonus for cleaning the downstairs by herself or doing jobs that I would normally take care of (cleaning the kitchen).  One day I went to run some errands and forgot about the bread I had left rising on the counter.  When I came home it was perfectly baked.  She earned quite the bonus for showing initiative and being pro-active in doing what needed to be done without being asked.  Since that is the kind of behavior we are going for, she was rewarded for it.

We also pay them for large, ongoing jobs that we need help with.  Sandy left us with several downed trees that need to be cut in to firewood and stacked.  Matt chops the wood and the children get five cents for every piece of wood that they stack.  They get ten cents for every piece they haul up the hill and stack.  It’s their responsibility to keep track and report to me.  Emma and Spencer usually earn about a dollar before they get bored and run off to play.  Lucy earned $38 the first day we set up this system.

I have tried charts with dollar amounts assigned to certain jobs, etc. but I found it to be far more time consuming than I wanted it to be.  I have found the daily rate to be far easier (and less expensive) for us.

So how do I go about physically paying them?  We set up a system very much like the real world and the logistics of the payment is actually pretty simple and practical for us.  There are two parts.

  1. An actual, real-life bank account.
  2. A theoretical, “Mom” bank account.

The first thing I did was open actual savings accounts for each of the kids and deposited some money in them.  I then created a simple google docs spreadsheet where I keep track of their earnings.

When they want to buy something I look up the spreadsheet on my phone to see if they have enough.  If they do I will buy it and subtract the amount from the spreadsheet.  I never actually take money out of their real life bank account unless it is a large purchase that we wouldn’t be able to cover on our own.  Spencer and Emma have been earning and spending the same $25 all year long (actually, Spencer is in the hole $15 at the moment because he broke our white noise machine and has to pay us back).  Lucy is a different story.

If and when they earn above and beyond what is in their real life bank account I transfer the money in to it.  For a child who is saving to buy something expensive, this is a must.  For example Lucy is saving up for an iPod Touch.  Since we began she has saved about $70.  I will continue to deposit $5 here, $10 there until she has saved enough.  When she is ready we will transfer the entire amount back into OUR (Mom and Dad’s) checking account and then buy it for her.

The only time they handle cash is when they pay their tithing.

This works for us for several reasons

  1. It’s simple.  I don’t have to keep track of specific jobs or figure out what a job is worth.
  2. It’s immediate.  I just add to or subtract from our my spreadsheet at any time or place because it is online.
  3. It’s real.  Our “Mom” bank account is very similar to how banking works in real life these days.  Their money gets added through “direct deposit” and subtracted through “debit”.  When they get older I will slowly transfer the responsibility of keeping track of their finances to them so that by the time they leave home, they will 100% know how to use a bank account, write checks, use their debit card, keep a register, and pay bills.  In the near future I will be issuing the kids their very own “debit cards” (nothing more than a laminated card with made up information).  This will serve the purpose of teaching them that their money doesn’t come out of nowhere, that the CARD is linked to their account and if they want to buy something they must present the card.  If they forget the card at home, then they can’t buy the thing they want.
  4. It almost entirely eliminates their use of cash.  I’m not against using cash, in fact I think using cash can be very helpful.  That being said I don’t want my CHILDREN using actual cash.  Why?  Because I am astounded at the levels of manipulation that bubble up in my children when cash is involved.  Emma will “buy” Spencer’s quarter for a couple of pennies or “pay” him with a handful of nickels she found in the couch cushions.  One child will find a quarter on the floor and immediately a debate erupts as to who the actual owner is.  A dollar bill found in a book will magically disappear.  These are all experiences we have dealt with and, frankly I’m sick of the “this is STEALING” lecture.  They aren’t trying to be bad but when a four year old finds a $2 bill in a set of scriptures what is he going to do?  We now have a standing rule that any cash or coin that is found must immediately be turned in to Mom.  If it’s in the home, it belongs to me.  If they find any cash or coin outside of the house (Lucy once found $20 on the ground at the grocery store and no one claimed it at customer service) then it is immediately turned in to Mom and the amount gets deposited in to their bank account.

This system works very well for us.  If you are thinking about instituting something similar I would give you a few tips that we have learned along the way.

  1. The entire system hinges on your family’s financial security.  This is the first year we have been able to pay our kids.  Sometimes it’s just not possible and you don’t need to feel bad about that.  If you can’t pay with money, think about payment in privileges, staying up late, dates with Mom or Dad, or something else.  If Dad loses his job or your budget is tight, obviously your children will not be able to continue being paid.  They will, however be required to continue to help out.  This would be one of those “you are part of this family therefore you will contribute” moments.
  2. What is a reasonable daily salary for one family may not work for the next.  Do whatever YOUR family budget can afford.
  3. Don’t pay them much.  I know this sounds bad but trust me, it’s not.  The reason we are paying them for work is to train them to be responsible, working citizens.  If what they want to buy more than anything else is a $10 toy and they earn that $10 in a couple of hours what have you taught them about delayed gratification and patience?  Nothing.  Are they going to continue to work day in and day out if they don’t have to?  No.  Pay them enough so that they can reach their goals, but little enough so that it takes some time to get there.
  4. Be realistic about age differences.  Not all children should be paid the same.  Pay your kids more money the older they get and the more responsibility they take on.  Eventually you will not be able to keep up with the amount they want to earn.  Let them figure out ways to earn money above and beyond what you can pay them.  Help them start a dog walking or lawn mowing business or set up an Etsy shop.  Encourage entrepreneurship!  Once they have a good and steady income on their own (even if it’s only seasonal) then you don’t need to pay them anymore.
  5. Let them buy things.  It’s SO tempting to try and encourage your children to save their money so they can buy bigger, cooler things later but it’s not realistic for a five year old to understand that.  All a five year old hears is that he has worked and worked and earned and earned and now he’s not allowed to get that dragon he has been eyeing.  As they mature, the things that they want to buy will get more expensive and so will their ability to practice delayed gratification.  At ten years old Lucy is well on her way to earning that iPod Touch.  She has a long way to go but she is working hard for it.  If, in the mean time she decides to spend $4 on some yarn for a scarf or $3 on fabric to sew a dress for her doll, she does so with the full knowledge that it will be that much longer before she can get her iPod.  It’s harder for a five year old to understand that concept, but he will get it with age, experience, and maturity.
  6. Teach them to think of others before they think of themselves.  In our family, before we pay any bills we pay a 10% of our income to our church as well as other financial offerings.  Among other things, our church uses the money we give to feed the poor, send humanitarian relief, teach literacy abroad, and more.  Even if you are not religious I would encourage you to train your children to get in to the habit of giving to those less fortunate.  Not everyone has been as blessed as we have and it is our responsibility to care for those who are in need.  There are countless charitable and non-profit organizations that accept donations if you don’t want to give to a church.  As far as your children are concerned, it doesn’t even need to an official non-profit organization (it’s not like they need to itemize their tax deductions, after all).  Does your daughter love to sew?  Have her spend some of her money to buy supplies and sew bereavement diapers or handmade dolls for pediatric cancer patients.  Does your son love to play basketball?  Is there a little boy in your neighborhood too poor to buy his own ball?  Is there someone in their class that is in desperate need of a new pair of shoes?  Ask their teachers or principal if there are other students in need.  Show them how to give anonymously.  Think outside the box!  The important thing is that you teach them to give to those less fortunate BEFORE they start spending money on themselves.
  7. Encourage long term savings.  You may not be able to do this for a five year old but an older child can understand the concept of long term savings.  Teach them how to set a portion of their money aside for college, a mission or a car.
  8. Discourage debt.  A child has no business getting in to debt, even to their parents.  I know badly you want to help your son buy that dragon he has been talking about for months.  DON’T DO IT!  Don’t be co-dependent.  It is counter productive and does NOT teach them how to handle money or practice delayed gratification.  If you want to be generous and buy it FOR them then go ahead, there is nothing wrong with that (it just so happens that Spencer is getting a dragon for his birthday), but none of this “you can pay me back later” nonsense.

So what works for you?  Do you pay your kiddos?  I would love to hear your ideas :)

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4 Comments Add yours

  1. Sanz says:

    We used to think that kids shouldn’t be paid for work because work is just part of being in a family. But then we realized we wanted them to learn to manage money, learn to make choices about spending money and have regular opportunities to pay tithing. My boys get paid .25 a day for doing their list of jobs. They can earn extra money by memorizing a song on the piano ($5) , reading a chapter book ($1) or doing other extra stuff. Saturdays we all work together to deep clean the house and do yard work and no one gets paid. We also have our kids help pay for things and as they get older they will be required to pay for even more. For example, my almost 7 year old is attending robotics camp. It was $50 and we told him if he wanted to go he would have to pay half of the fee. I think it helps children appreciate activities more and to take them more seriously when their money is involved. You’ve got great ideas. It sounds like you’ve developed a system that works great for your family.

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  2. Cari says:

    I love this! I have tried so many things and they end up being so much work for me. I love the book the entitlement trap, but my kids are too young for that complexity. I also hate giving them cash simply because I never have any! I have been paying them in fake dollars each week but they forget what to do if they don’t get paid each day. I’ll have to try something like your system that I can keep track of on my phone…I completely agree with your ideas, especially about teaching delayed gratification, it is so important that children have to work for things.

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    1. I got the initial idea from entitlement trap and adjusted it a little bit to fit our needs. We have been going strong for a few months now and it’s been super easy. I don’t always remember to enter it in but because we pay the same amount per day it’s easy to figure out how much I missed. I must confess, sometimes the tooth fairy makes deposits in to their account when she forgets to leave something under the pillow :)

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