Children Saving Money

In Newale S. Godfrey’s book, Money Doesn’t Grow on Trees: A Parent’s Guide to Raising Financially Responsible Children (Fireside Books, 1994), the author makes the following points:

Saving money is essentially a discipline that youngsters must be taught just like brushing their teeth or doing their homework. She offers a three-step process for teaching children how to save money.

We save money for three reasons: first, for protection in case of an emergency; second, for retirement; and third, to buy something we really want. For younger children, she suggests that you approach with the third reason(to save for something they really want to buy.

The principles for inspiring anyone to save money are the same for youngsters age six to sixteen:

1. Provide your children with the tools to save. They must have a source of money of their own to save.

2. Provide the proper environment where the children can safely keep the money saved. This can be a piggy bank or toy safe.

Monitor the activity and provide encouragement. Set attainable goals and then reward your children with praise for successfully saving the money.

Allowances: When and How Much

To learn about money management, youngsters must have real money on their own to manage. Rather than handing youngsters a sizable sum of money, or doling it out a dollar at a time, a weekly allowance gives children a source of income that they can learn to make decisions about.

It has been debated whether this weekly money should be tied to chores. Yes, yes, yes! In addition to using an allowance to teach money management, this weekly sum will also show your children the relationship between work (chores) and money (allowance), clearly an important concept. Not only will the children someday work for money, but earning an allowance will underscore the fact that you, the parent, work hard for your money, too.

Once you’ve decided that an allowance is a useful teaching tool and that your children are ready to begin “earning and learning,” then you need to formulate a starting “salary.” For my own two children, I started them on an allowance when they were 3 and 6 years old. I used an easy rule of thumb: their allowance was the same number of dollars as their age. I’ve continued to use this rule as they’ve grown.

Many people’s first reaction is that three dollars is a lot of money for a three-year-old. Let me explain what you and your youngsters will be doing with this money. There are three basic areas of money management we will be working on. I call it my S. O. S. system. Briefly, they are:

1. Savings. Some portion of the allowance needs to be allotted for both short-term savings, like for a special toy or outing, and long-term savings, such as for a bicycle or college fund.

2. Offerings. This is a small amount of money set aside for donation to charity or to the less fortunate. However small the sum, it is a valuable way for a parent to teach personal values through money by showing the children how to share their good fortune.

3. Spending. Depending on the budget you develop with your children, part of their spending money may go to cover specific expenses. It can range from lunch money or bus fare for young ones, to total management of a year’s clothing budget for more sophisticated teenagers. At any age, however, there needs to be some money that is the children’s discretionary fund to spend as they wish (with whatever limitations you set—for example, no drugs).

I believe in assigning specific chores that each child does weekly to earn the allowance. In my household, we have two kinds of chores: personal maintenance (like keeping one’s bedroom free from fire hazards) and general household chores (such as setting the table or dusting the living room furniture). Payment of the allowance is based on the latter. Each child has specific chores that must be completed each week before the allowance is paid . . .

Here is where children should be in terms of financial independence at different ages:
Ages 3–9: Allowance
Ages 10–15: Allowance supplemented by outside jobs (baby-sitting, yard work, etc.).
Ages 16 and up: Teenagers’ outside jobs cover expenses like dating and gas. All basic necessities are funded by parents in an account the teenagers control.

Additionally, a parent should have certain odd jobs available to the youngster who wants to supplement their allowance the same way some employers offer overtime pay. Make a list of the not-urgent jobs you need done with the “overtime” fee you would pay, and post it on the refrigerator. Then, when your offspring asks for a second pair of designer sneakers or money to go ice skating with friends, refer to the list.

Source: Parenting for Peace and Justice Newsletter, Issue Number 65, December 1994