Lessons on Saving and Spending
I’ve always told my kids that if they learned this one simple trick they could double any money they earned. “Just fold it in half and stick in your pocket!” Today that advice is not so easy to follow since everyone uses credit cards and debit cards and eChecks or PayPal. But this time-honored and wealth generating logic still holds true: there are only two ways to financial well being. You either make more or spend less….and doing both is even better. Let me show you how we taught our boys to save and spend responsibly….
In the grand scheme of life, learning how to manage your money can make a huge difference between living comfortably or surviving paycheck-to-paycheck. It’s one of those life skills that your kids need to learn early, often, and get ingrained as a habit. Unlike teaching them about sex, drugs, and other volatile topics, learning about money matters can be a hands-on process they experience with you from an early age.
Creating a balance between saving and spending is the key. You cannot have one without the other. These are the yin & yang of personal finance. Having all focus on saving creates a Scrooge, while rampant spending leads to the Poor House, bankruptcy, and poverty. Understanding how to properly balance saving and spending is commonly known as following a budget. I don’t mean the painful and self torture process some people believe budgeting entails. Budgeting (balancing) simply means looking beyond today’s short-term immediate “wants”, and focusing on the longer-term financial or life goals after taking care of your “needs”. The hardest part about this is to teach them delayed gratification. Most kids today live in a high speed digital world. I want information now…I want next day delivery…pizza in 30 minutes or less… Netflix movies… microwave dinners.. and so on. It’s not surprising that we have a whole generation of spendthrifts.
Trying to explain saving money seems obvious and redundant. But it’s not the “what” that trips up most parents, it’s the “how”. So with that in mind, here are a couple of ways you can help your child learn to save money responsibly.
Allowance – Your kids will never learn to manage their money if they don’t have any in the first place. However, I am dead set against just giving it to them. It’s not an entitlement for doing nothing. So make sure they understand the ground rules about how to earn their allowance through chores; school work; respectfulness; citizenship; or whatever your family wishes to put a value on. The amount is also left to family or local convention and should be based upon your whole family’s economic burdens. It does no good to overpay your kids an allowance while shorting the basic needs of the family or home. Some people pay them based upon their age in dollars per week; or half of that or some other formula.
Buckets – this approach is slightly more involved but can be a great visible or tangible reinforcement with your child. Simply put three buckets (piggy banks; socks; etc) out for your child. Each bucket has a unique role or goal: Saving; Spending; or Giving. Whenever your child earns money, they need to feed each bucket. How you do this is strictly up to you to decide, but the easy way is by percentages or splits set up against which of the three you want to focus on more. For example, we always told our boys that 50% must go into savings. This was non-negotiable, and would regularly be taken to the bank to deposit into their savings account (college fund). Then 10% went into the Giving bucket. This was for them to use in any chartable manner they wanted to support. The remaining 40% goes into the Spending bucket. This is money they were allowed to spend at their own discretion (along with parental approval). As I noted before, once you have developed a savings strategy, you must also teach them about spending too.
This is one area where a lot of discussion, disagreements and therapy will occur. And that’s just for the parents. For most people, spending money is much more pleasurable than saving it. There is the anticipation of new stuff; food; movies; clothes; trips and everything our materialistic society promotes (no more preaching). Spending is where the fun is…it’s Vegas baby! The problem is that like most new things, it gets old quickly and for young children it is even worse. I cannot count the number of times my kids just had to have the latest widget, and within a week it was discarded or forgotten about.
Cash – Emptying their “Spend” bucket is where most valuable money lessons will be learned by your kids. They will spend that fun money and empty the bucket on a regular basis. Let them…encourage it. You need to let them make buying mistakes at an early age before the big dollar items come along. They need to have buyer’s remorse and learn from it repeatedly that impulse buys are not good decisions.
Our personal approach to shopping was not received well by other people. When our boys were little, and we were at the checkout – you know right where all those goodies were strategically placed by the stores…invariably the “I want..I want” chanting would ensue. My response to them was sure, get whatever you want. Then I would check out and stand there with my stuff all bagged and wait for them. The problem was they did not have any money with them. They had not brought their Spend money along and when the cashier would ring it up I refused to pay. I’d tell them to pay her themselves. Of course everything had to be put back and I had to endure the dirty looks from other shoppers and cashiers. But I can guarantee you this - after a couple of these lessons our boys never gave us the check out tantrums ever again. Word.
Loans – Simply put, don’t do it. Kids need to learn that we are not going to bail them out every time they come up short – financially or otherwise. If they want something then they need to learn to wait until they have the money saved to buy it outright. One of the benefits of this approach is that many times by the time they have the money saved up they had either forgotten about that item or wanted something else. One exception to this that I made was when our boys were older and wanted their own motorcycles (dirt bikes). I was racing and they wanted to do it too so I helped them out. If they saved up half of the cost of a motorcycle, then I would pay the other half. Not quite a loan but more of a partnership.
Value – Please do not overlook this aspect of spending with your child. I took this on as a personal challenge whenever they jumped into the buying mode. Simply ask them “Is this a good value?” For example, lots of times there will be sales or specials offering discounts like “Buy 2 get the 3rd one Free”… or half off or whatever. I’d ask them to determine if it was really a bargain or not. Besides exercising their brains (like another article) doing the math, they learned about marketing and promotion…and that eventually nothing is free. By the way, the lesson on getting the 2nd or 3rd or whatever for free is that they just conned you into spending more money or buying something you did not need. You can argue that the cost per item was lower, but you really spent more cash in total versus just buying a single item.
PS - The Three Jars Method Came from the Muppet Elmo on the popular children's television show Sesame Street.