How We’re Teaching Our Younger Children to Manage Money Well

Guest post from Hope

I recently shared a post about “Why We Let Our Teenager Manage Our Budget”. In the comments of that post, someone asked that I share a few additional tips for money and younger children.

We have four boys, ranging in age from 16 to 4. My older boys joke that they have been guinea pigs for all of our theories. I smile, thank them for their long-suffering patience, and assure them that we are, indeed, redefining our policies for the younger boys. So, here are my tips – only the best ones!

Allowances: Age 5-10

Our policy on paying children has fluctuated over the years and has mirrored changes in our own financial fortunes. When our older boys were in grammar school, we paid them an allowance.

They understood that this money was for doing specific age-appropriate chores that were assigned to them weekly. If they did not complete tasks in a timely, appropriate manner, then their “paycheck” would reflect their job performance.

They were expected to tithe 10%, save 50%, and spend 40%. We did not intervene in how they spent their money except in specific circumstances — they were not allowed to purchase any items we considered inappropriate or immoral. We would counsel them about items that were cheaply made.

We had a lot of conversations about “quality” versus “quantity”. A few times they opted to purchase an inferior item, and were sadly disappointed when it broke within a short time. This helped them consider the importance of our words.

Allowances: Age 11-15

By the time our older boys reached middle school, we had more children, more expenses, and less money. We also realized that their needs had changed. Older children need to begin to see the importance of saving and planning for long-term goals. So, we explained that they would no longer receive a weekly allowance.

Instead, they were to set their own goals and save for specific items. Then, they would need to find work from someone besides us. When they had saved up one half of the amount needed for the item, we would kick in the other half.

The boys have been ambitious. They have researched the best prices and values for each item. They have been paid for installing a barbed wire fence, cleaning a condo (remember all those early lessons I gave them in how to properly clean?), pet sitting, and lawn maintenance. They have purchased digital cameras, an electronic book reader, camcorders, and (most recently) a used Macintosh laptop.

This plan has undoubtedly cost us more over the long-run than the weekly allowance did. But, I believe it prepared them more effectively for life as they turn sixteen.

“Pay-Day” Loans

Prepare yourself! Soon, you will be standing at a garage sale and they will see something that they “just can’t live without”. They will plead with you to advance them money for the item.

The first time this happens reply, “Mom and Dad don’t spend money we don’t have and we expect that you won’t either. However, if you wish me to loan you $5 for that toy, you will need to pay me back $9 next week, not $5.”

Their face will fall, they will be aghast, they may even scream, “That’s not fair!” Simply reply, “No, THAT’S a Pay Day loan.”

I did it – once – with each of my older boys. Never did they decide that the price of the loan was equal to the worth of the toy. I recently overheard the older boys warning one of the younger ones, “If you don’t have the money for that, you’d better put it back. Never ask Mom to loan you money!”

What about you… do you have any tips for helping younger children to manage money?

Hope is the stay-at-home, homeschooling Mom of four boys and wife to Larry for 24 years. She loves to sing, write, teach history at her homeschool co-op. and speak to groups in her spare time.

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Comments

  1. Ashley P says

    When I was a kid, I got a dollar a week. My grandmother paid me in dimes and taught me to put one dime to tithe, one dime to my savings bank, and the rest I could spend as I chose. I usually spent it on Thursdays at school, which was the day they sold ice cream.

    Once I got older (about 10) the allowance stopped. If I wanted money, I had to do special chores around the house. Not dishes or laundry or things like that. Grandma said that those were things I did as members of the family, as part of our share. She did pay us $50 every summer to paint the back porch (and we had a HUGE back porch!) and also paid us for cleaning out the garage or organizing my grandfather’s office for him.

    Having grown up relatively poor, I learned a lot about saving money pretty early. I didn’t even usually save it for stuff I wanted, because, as I said, when you’re broke, you find out you really don’t NEED as much as you think you do. I didn’t NEED to go to the movies with my friends or get new fashionable clothes. We wore uniforms at my school, so it didn’t matter anyway.

    By the time I got into high school, I got a full time mommy’s helper job. Two kids in my school had a mother who had a particularly difficult pregnancy that required bedrest for almost the entire duration. So I would take the kids home from school, make them dinner and help with their homework. Between that money and the money I saved from every birthday and Christmas, I was really able to help myself pay for that first year of college.

    I’m still pretty frugal to this day. Between our lack of expendable cash and my grandmother’s Depression-Era wisdom, I learned a lot about money, how to save it, and how to spend it properly, even as a young kid. I plan on teaching my kids the same lessons.

    • Kimberly in NC says

      Ashley- I think that is great. My parents taught me to save and give as well even though we had chores and no weekly allowances. I like the idea of showing how to split ten dimes of every dollar to show how to be responsible stewards. I think we’ll use that method when our boys get old enough. Thanks for sharing.

  2. says

    I agree with Jaime and Andrea – the payday loan idea is genius! I read recently about a man who loaned his kids the money to buy their first bikes. They had to sign a contract and agree to the interest charges. If they missed a weekly payment the bike would be impounded. When the contract was paid in full they burned the loan papers and celebrating being debt free.

    While seemingly harsh, real life exercises are *the best* preparations for adult life.

    Well done Ms. Hope!

    • Megan C says

      My parents loaned me money for purchasing my bike when I was about 9…with the understanding that I’d pay interest and it would be impounded if I didn’t pay.
      When the weather got colder and I wasn’t riding it, I decided to let it get impounded because I wanted to use my allowance for something else. I ended up catching up on my payments a little later but at 9 years old, I totally understood about interest (I had to figure it out each month) and what impounding meant. Lesson learned. There are many adults who have still not figured out those concepts!

  3. august says

    The only thing that I don’t agree with is that they were expected to tithe some of the money. I just feel like that needs to come from your heart, not a requirement to get more money. Even if they did like doing it, I just feel like it should have been a random decision they made, not something the parents said they should do.

    Otherwise, the rest are really good tips!

    • Kimberly in NC says

      I’m sure it is simply their way of teaching Bible principles to their kids. And from that, hopefully it will give them a heart that desires to give more and more. (Makes me think of how we have to teach our young children about sharing with others because we all have a selfish mindset until we are taught differently.)

      • august says

        That makes a lot more sense. We’re not a religious family, so I guess I didn’t see why that was something they were expected to do. Thanks!

      • says

        What a great way of thinking of it! I love comparing teaching tithing to teaching sharing. I teach 1st graders (no kids of my own yet), but when kids see someone in need, often they are very compassionate and want to help out. It would be great if you could save your children’s tithe money to go toward a Compassion International child or one of those organizations that buys farm animals for a family. So much you can do with teaching this lesson!

  4. JenMarie says

    Great post–love the payday loan idea! It’s so important to teach our kids how to manage money well.

  5. says

    I love the payday loan concept.

    I used to teach high school, and I talked to a number of parents who were struggling to teach their children how to handle money. I had a few students who had some skills (technology-related) that made them very good at making money, and that caused some interesting challenges for parents trying to teach long-term financial concepts to teenagers. These are some helpful ideas for how I can teach my own children.

  6. WilliamB says

    “They were expected to tithe 10%, save 50%, and could spend 50%”

    I hope – an expect – this is a typo and not actually encouragement to overspend by 10%. ; – P

    • hope64 says

      Ha! I didn’t check the original on my computer. So, I don’t know if the typo was mine or not. I caught that right away too when I read the article. They tithe 10 percent, save 50 percent and spend 40 percent! Nope! No overspending in this family. :-)

      Hope

  7. Siobhan says

    I agree and disagree with you. I like how you have the older ones go out and earn money from someone else.

    For me, I feel like chores are just part of being part of the family. I don’t get paid for cleaning my room, why should they? But if they want to do something above and beyond the normal chores then I think giving them money for that is a great way to teach the value of working for your money.

    It could be something like washing the car, helping organize the garage, weeding the flower beds.

    • august says

      I absolutely agree with this. I feel like everyone should have to contribute (free of charge) and then go above and beyond. Great point!

    • Lee S. says

      I have 3 boys and until recently they got paid and it was not tied to chores. But increasingly they were doing less chores and more complaining. So I thought long and hard and came up with a decision. I still give my kids their allowance, but for every chore I (or my husband) does for them. They have to pay me. So essentially they lose money out of their allowance for not being accountable. It is still new, but I see them changing!

    • Ashley P says

      It’s like I said in my comment also, we didn’t get paid for our regular chores. Our territory included our rooms, the bathroom and the kitchen. We were expected to maintain those as being part of a family.

      But we did get paid for painting the porch every summer, hosing down the pool area when it mildewed, and cleaning the garage or washing the car.

      Totally agree with you! :D

  8. says

    These are some good ideas. As a child my sister and I received $5 a month. We also had a few chores. When things got tight we earned by babysitting and then in college we made our own way with scholarships and jobs. We haven’t given our daughter an allowance yet. She is expected to do her chores as part of the family and sometimes she earns a little extra for odd jobs. Her grandparents also like to send her money for birthday and such. She tithes of her own accord but we do encourage it.

    • says

      We give allowances. Each child gets one quarter for each year of their age. So, my 5-year old gets $1.25. My daughter turning 11 tomorrow will start receiving $2.75 next week. They can spend their money as they want for the most part (they must line up with our family’s rules).

      For example, last week, our school had a book sale. My son (age 5) really wanted a Thomas book/moviescope that cost $20! I would pretty much NEVER spend $20 on a book like that (I buy most of our books used for 25 cents to a dollar). But, it is what he wanted – he emptied his piggy bank and pulled out $20 worth of bills, and we bought it.

      While we don’t require giving to charity, it is something that we talk about, and they give as they desire. Each week, my kids bring money from their piggy banks for “tzedakah” (charity) to Hebrew school for a good cuase. They decide on the amount that they want to give. They are also learning how to save (or not). And if they don’t have money to buy something, they cannot. Although, we do give loans if there is a very good deal, and they don’t have enough.

      Birthday gifts (especially large ones from grandparents) are split up – some is for their spending and some is for their bank account to be used at a later time for a big purchase. Overall, I think my children are gaining a good understanding of money.

      BTW, there is a spelling error in the main post. It should be “counsel” not “council.”

  9. Susan says

    I have a 12 year old, and I’m proud to say that she is pretty savvy with money.

    I started giving her an allowance when she was 5, and have increased it annually. She gets paid every other week, same as me. It isn’t conditional on helping with household chores — she’s expected to help out around the house regardless. I give her money because (1) in order to learn to manage it, she has to have some, and (2) I think it’s important for her to be able to buy something here and there on her own and not have to ask me every time she wants something.

    She can earn extra spending money by doing extra chores. I keep a list of options for her, along with how much that chore is worth.

    I don’t quite understand the author’s reasons for ceasing allowance once her boys entered middle school. I agree that kids need to learn money management and how to save for specific items, but cutting them off completely seems unfair. I did the opposite and increased my daughter’s allowance around that age, but I also increased what she is responsible for, which includes clothes (beyond the basics, which I provide), birthday gifts for her friends, snacks, movies and other outings with her friends (not family activities). She can also earn extra money by doing chores for me and for others, such as babysitting or helping neighbors with pet care or lawn care. Just this afternoon she earned $5 by helping a neighbor rake leaves.

    I don’t police what my daughter spends her money on, although I will try talk her out of something if I feel that it’s something she will regret soon after. It is HER money after all. There have been times that she spent it on something that she regretted later, but better to learn that lesson when she is young and the price is small.

    Once I loaned my daughter money for something she really wanted but couldn’t afford. It was a good lesson. I provided an amount that I was willing to loan her, which she could add to the savings she had. The total was enough for the item IF it was on sale, so she needed to do her research and shop around, which she did. Then it came time to pay back the loan. A certain amount was deducted from her allowance until the loan was repaid, which took her three months. She learned quickly that having to immediately give money back right after receiving it is no fun at all.

    • hope64 says

      Susan,

      Although we did “cut” their allowance at Middle School, we didn’t eliminate our contribution of money in their life. We just redirected it. I assure you they did not feel slighted at all. In fact, they were excited at the prospect of being able to have items that, otherwise, it would have not been possible for them to save for – given the amount of allowance which we could afford to give them. It was then – and remains now- a financial sacrifice for us to make them this offer. Self- reliance is, perhaps, something which children from financially challenged families have to learn rather early in life.

      There were several reasons why we made our decision:

      1) We wanted to see the boys think in terms of long-term goals.
      2) Since the boys were getting older, they had begun to long for higher-ticket items that we simply could not afford to purchase for them. So, we struck a balance. We wanted to encourage them to dream big dreams and then be prepared to work hard to achieve them. So, we decided to “invest” in them – by offering to give them the second half of the money needed to purchase the item. Getting the first half, was their job. They also research various models, price ranges, etc. Since half of the money is theirs, they want a bargain as much as we do.
      3) Part of the reason they were “nicking and diming” away their allowance was that saving for large items was very daunting for them – since their allowance was SO small. When they understood that we were actually willing to invest 1/2 of the money needed to help finance their goals, they were encouraged to figure out ways in which they could work for the other half.
      4) Finally, when they stated a goal and began their savings plan, we had time to begin to save up for our half of the item. Seriously! We had to have extra time to put their goal into OUR savings plan. We still do. In fact, our middle son just announced that he has a new goal – to make certain we were able to put it in OUR 1013 budget. Yes, even a few dollars each month must be allotted in our tight budget!
      5) Yes, as I noted in my article, it HAS cost us more than their original allowance did, but we have felt that it prepared them in long-term thinking, long-range planning, and self-reliance.

    • Nichole D. says

      Wondering what’s on your list of options and price for each. My son is 6 and I’d like to come up with something similiar. Thanks for sharing!

  10. April says

    We give our 2 yr old $5 a week once we put the money in her savings account. Once she is 5 yrs old she will start to work for her dad and earn $5 a day doing simple tasks such as empty wastes baskets and picking up trash at one of the office buildings he cleans. Once she is óld enough and fully trained we plan on turning one of’ the buildings over to her she’ll earn $40 a week for 2.5 hrs of work a week. Right now she helps me out somewhat in our home office. She brings me papers from the printer that type of stuff.

  11. Megan C says

    My parents did basically the same thing with the younger years allowance. However, once we became teenagers and there were youth group activities, camps, clothes and so much more that we wanted they changed it up. There are so many good things that kids can be involved in but they almost always cost money. When I was in junior high, my parents gave me $40 every two weeks, essentially $80/month. We were expected to tithe with that and the remainder we had to pay for all of our expenses except food and shelter. If we wanted to go bowling with the youth group, we paid. If we needed school supplies or new jeans, we paid. It prevented us from asking for money every time they turned around and it taught us a lot about savings, wants vs needs and so much more. I got a job at 16 and they stopped paying me. I was still expected to pay for everything at that point, just with money I earned. I paid my way through college and I’m still using much of what I learned during those teachable years. I’m so thankful my parents had the wisdom and discipline to teach my sister and I about money when we were growing up.

  12. Tracy says

    When my son turned 5 I started to give him $2 allowance each week. This money was tied to some basic chores like putting his dirty clothes in his hamper and picking up his toys. Then every year on his birthday his allowance goes up by $1 he is now at $4 a week. However how he earns it has now changed he has to get green all week at school which means he paid attention and behaved well and he has to do his best on his weekly exams. He also know that chores are part of being in a family. If he does help and do extra chores (the ones I really don’t like) such as picking up sticks before we mow he will earn a little extra.

    When he does spend his allowance on items of his choice, he is required to save all the coins he receives back as his change. The reason being that he puts some of the coins in his savings bank and the rest goes in his Toys for Tots bank. Toys for Tots is a charity he chose to help when he was 3 all year he puts coins in that bank and then we take it to the bank and have it exchanged for dollar bills. Then I take him shopping so he can pick out toys to donate. It has become part of our Christmas tradition which we both look forward too.

    • Nichole D. says

      I like the idea of letting the child pick the charity to help. I did something similar with my 6 year old son and he chose to help animals. I plan on printing the wish list from the local Humane Society and going over it together as a family. Then we’ll purchase the items and deliever them to the animals. Great idea – thanks!

  13. JP says

    Thanks Hope. I had a very different upbringing. It’s interesting to see how others approach it.

    My parents did not discuss finances. We had an allowance but never saved for a big purchases. We were expected to work at a young age but not to balance out check book. It was a mixed bag.

    In my young twenties I mimicked how my parents spent money. Most of it was subconscious.

    I think there’s a lesson there. If you don’t teach kids they will adopt your habits. If those habits aren’t good then they’re in trouble.

    I see that you live what you preach. This is excellent.

  14. gabz says

    Growing up, I don’t get any fix allowance from my parents. My parents didn’t see the need to do so because usually we don’t buy things on our own and it is their policy if we want to get something (snacks from school canteen), we tell them and then they will give us the money for the whole week. When I left home at 15 my dad will pass my allowance accordingly and only now when i’m in university that he gives me fixed amount of allowance. I am still learning on how to manage my financial wisely and even though it is still messy, i’m slowly coping up. Reading this article definitely inspired me to teach my kids one day on how to handle their finance.