The typical systems of teaching children money management include having them save 10%. Other systems involve them saving 10% and giving 10%. There are merits to each of those systems but we could clearly see that they would not work for our family.
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We have seven children and three of them are the same age, so it didn’t take us long to figure out that there was no way that we would be able to even afford to pay for their insurance when they started driving, let alone vehicles for everyone.
We knew that what we did with our oldest would set a precedent for all the kids to follow, so we came up with a system that would instil in our kids an understanding of the importance of saving. We also wanted our kids to be in the habit of paying cash for things instead of taking out loans or acquiring credit.
How does our saving system work?
Before our kids turn 12, we brainstorm with them ideas for earning money. We want to teach them the value of hard work and want them to be an active participant in choosing how they can earn that money.
When our kids turn 12, we make an appointment to go into the bank with them so that they can open a bank account. We make it a special day and open both a savings and spending account and have the accounts linked so that they can transfer from one to the other.
From that point on, any money they earn gets divided equally between the two accounts. This includes money they may be given from grandparents on birthdays.
To be clear, 50% goes into their spending account which they can spend however they want to, but 50% goes into the savings account that they are not allowed to spend from other than certain exceptions. These are the only things they are allowed to pay for out of their saving account:
- driver training lessons (this teaches them defensive driving skills and lowers their insurance rates)
- a car
- insurance for their car
- vehicle repair and winter tires
- a down payment on a house or condo
- secured investments
In the area that we live, kids need to be 14 before they can be hired for a regular job and so far, all of our kids have been eager to start work right at 14. We help them with writing a resume, hold mock job interviews with them and take them to drop off their resumes at different establishments that hire teens. They usually start with a fast food job and once they have acquired some experience there, they go on to higher paying jobs elsewhere.
I realize that our system is a bit radical and understandably, we have gotten a lot of questions about it over the years. These are the most common questions we get.
Do our kids complain about having to put away 50% of the money they make?
In general, no. We explain to them that we are doing our part by providing our gas and time to get them to their jobs before they start driving (even waking up at 5 a.m. sometimes when they have an early shift) and that we will not charge them gas money or an hourly rate to do that as it is our contribution towards their futures. With our oldest, he complained once and we offered to suspend the system if he paid us gas money and for our time. He discovered he would almost be working for free and would keep even less of his earnings plus have no savings towards a vehicle, so he decided that the system wasn’t so bad after all!
The kids that have come up after our oldest are excited for their turn to start because they have seen the results of their brother being able to afford his own car. Our oldest even told his siblings that it was the best thing we could have done for him.
What about charitable giving?
We talk a lot about charitable giving as a family. Our kids see us tithe to our church and donate to causes that we feel passionate about. They help us fundraise for different causes. Last weekend, our kids asked that instead of birthday gifts, the guests at their birthday party bring donations to an orphanage. Because of how we live our life, they are being taught to give, not just monetarily, but also of their time and talents.
We also teach them that they should only give to organizations that they believe in and have helped them research different causes to determine if it was where they wanted to contribute. We don’t mandate that our kids give a certain percentage of their spending money to a specific charity but instead teach them to follow their hearts and be obedient to what they feel God is calling them to share.
I don’t track it, but I think I’m safe in saying that on the whole, they give more than 10% without us mandating that they do so. We often see them put money in the offering plate at church or give money to someone we know going through a hard time or to a charity that they are passionate about.
How can they earn money before they are old enough to work?
This is where we try to teach our kids to take what they enjoy and try to earn money from it. We also want to instil an entrepreneur spirit in them so we guide them somewhat but get them to take the lead on brainstorming ideas.
Our daughter loves kids and is very good with them so she earns her money by babysitting. When she was 12, she took the babysitter course and afterwards, we worked together to create her Babysitting Kit. She is a wonderful babysitter! She is also taking training so that when she is old enough, she will be able to be a swimming instructor.
One of our sons asked if he could be in charge of the depot at our house. His proposition was that if he organized all the bottles, cans and milk jugs and took them in to the Bottle Depot (with us driving of course) that he would keep half of what was paid. Some of our friends and family get him to do the same for them and that is how he earns his money right now. He loves engines and wants to apprentice as a mechanic and will start that when he is 14.
Our other 12 year old son who loves to be outside came to us with a proposition to do some yard work, shovelling in the winter and mowing the lawn in the summer. He sat my husband and I down and had a presentation ready, including why he thought he would be good at it and what he was prepared to do including weed whacking. When we asked him how much he proposed we pay him for this service, he said $9 per time. It was hard to keep a straight face! You see, we live on more than three acres and almost all of it is grass, so he was greatly undervaluing himself. But it was a good starting point and allowed us to teach him about negotiating and researching before giving a quote! We agreed to start at $15 and go up from there depending on the quality of his work.
Does the system work?
Two of our seven kids are old enough to drive. They paid for their own driver training classes, their insurance, their registration, and their cars. They pay for their gas, car maintenance and repairs.
We live in an area where there is a fair bit of affluence and many of their friends are given brand new cars for their sixteenth birthdays and are even given gas allowances to spend. Both of my sons have thanked me for making them work hard for their cars. They say they see those friends not taking good care of those vehicles and not appreciating them. My boys are so proud of their used cars because they earned them.
They have also seen friends who took out loans or leased vehicles and then can’t keep up with the payments so they feel thankful that they paid for their cars outright.
This money management system helps prepare them for real life and to take ownership of their own future.
I would say that these pictures of our sons with their first cars speak to the system’s success!
How can you set your kids up for success?
Although we are trying to foster independence in our kids, we also want to help them be as successful as they can be. Here are some things you can do to help them with this system.
- ask your bank if they offer special youth accounts with no fees
- allow your kids to learn skills like first aid, swimming lessons, and volunteering to add to their resume and to build their confidence
- enrol them in courses for kids or teens on money management
- talk openly with them about budgeting, saving and earning. Don’t make money a topic shrouded in secrecy in your home.
- research with them the costs of things like insurance, car maintenance, and used cars so that they will be able to budget and plan
- teach them about investments
- play board games that teach real life money management or investment skills. Examples include the Game of Life, Cashflow or Cashflow for Kids (these are both from Rich Dad, Poor Dad), Payday, Moneywise Kids, and Dave Ramsey’s Act Your Wage Game.
- introduce them to books or programs like Dave Ramsey’s Financial Peace Junior or Rich Dad, Poor Dad for Teens: The Secrets About Money That You Don’t Learn in School. I know that there is a bit of conflicting advice between these two financial experts but exposing your kids to both viewpoints can allow for some great discussion and a lot of potential for learning!