How to Teach Kids About Money (Part Two)

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If you missed my first post on teaching kids about money, you can read that here.

So, what are the nuts and bolts with how we handle money with our kids?

We pay them their salary every month, usually at the beginning of the month.  This is how it looks step by step:

How do you decide how much to pay them?  It would depend on how you handle your finances and how much you can afford.  In our case, we have a large family and live on a tight budget.  For this reason, each kid gets paid $.25 per year per week.  For example, our 10 year old would get paid $2.50 a week, making it $10 a month.

At what age do we start paying a salary?  For us, we feel a good age is when they can start participating in regular, daily responsibilities.  In our house, this begins at age 5.  At age 5 each kid begins participating in our three main chore times: breakfast chores, lunchtime chores, and evening chores.  So, when each child turns 5, they start earning $1.25 per week ($.25 x 5).  I did write a bit on kids working here and here.  You can also subscribe to get all the posts from the day in your inbox every night at 7 and get my list of age appropriate chores for each age to download for yourself.  You can do this by clicking on the graphic of the cleaning bucket in the upper left.

Do we require certain things with this money? Yes, we do until they reach a certain age.  For us, this is 13.  When they are 13, they get to decide whether they will follow the same pattern for handling money that we have required.  Their expectations also increase as their demands increase.  For example, when my daughter wanted to start playing a second instrument, she was required to contribute half of the cost.  I supplied her with her first instrument, but she needed to contribute toward the second one.  I bought it up front, and she paid me in monthly payments that we both agreed to, in writing, ahead of time.  As I mentioned here, they also pay for gifts and additional costs on any “upgrades” on things that are a want rather than a need.

What are their requirements?  We require their money be allocated as follows: 25 percent in longterm savings (this gets deposited into the bank every so often and would be used for things a car or to contribute to college, or even for a house someday), 25 percent into short term savings (this is kept either in our home or in the bank, whichever they decide.  This is how they pay for more expensive things that they want), 25 percent into their spend category (this is where anything they need to buy like gifts comes from, or it is what they use to pay for their inexpensive wants), 10 percent is required to be allocated to tithing (sometimes they bring their money to church, other times we have pooled their money to support things like St. Jude’s Hospital for instance), and the remaining 15 percent goes toward taxes (we feel it is important that they get used to money being taken off the top right away to taxes.  In reality, we use this money to go out for ice cream or pay for a family movie or something like that).

How has this worked out for our oldest now that she is over 13?  She actually has continued dividing up her money the same way now that she has the freedom to choose.  Actually, she saves nearly everything she makes.  She is the typical type-A who likes to plan most things everything, so she enjoys feeling like she is prepared for whatever may come.  She has had expenses come up that needed to be paid for (one time she left her instrument out in the living room despite repeated reminders, and it got sat on.  She plays the flute, it got bent, and it needed to be repaired.  Since she was blatantly disobedient and irresponsible when she was old enough to know better, she was required to pay half of the repair bill), so she has experienced those unexpected expenses that we all do and learned from them (I have never even seen her flute in the living room since ;).  It would not surprise me if my son, who turns 13 in the fall, decides to spend all his money on his wants.  Although this will be painful to watch, the home is the place to learn the problem with this reality.  None of us can spend everything we earn on everything we want.

This method has worked well for us for several years.  It has accomplished teaching our kids the lessons we want them to learn in handling money, at least primarily.

How do you handle money with your kids?