Life Skills Every Kid Should Know: How to Manage Personal Finances (Part 2)

This post is part of a Risky Kids series: Life Skills Every Kid Should Know. You can find all the posts in the series on the Life Skills Every Kids Should Know page. This is Part 2 of How to Manage Personal Finances. You can read Part 1 here

Personal Finance Skills For Kids

In our last post, I gave you the background on our journey to learning about personal finance, and explained why we’re so adamant that our kids will master this essential life skill. In this post I’ll share how we’re passing the knowledge on to the kids, as well as give tips and resources to help you along. Just like we struggled with finding our own footing on the path to financial competency, we also struggled with how best to get the kids started on the path with us. There are so many opinions and ideas on the subject, that it’s easy to get overwhelmed and just throw your hands (and their money!) up in the air. Your options basically boil down to three philosophies on kids and money:

  • Pay for everything, throw a few lessons in along the way, and let them figure it out.
  • Give them an allowance that is unrelated to chores and personal responsibilities.
  • Give them an allowance that is tied to completing chores and personal responsibilities.

As parents who have tried all three methods at different times along this journey, we feel pretty confident that we can speak to all of them. They each have their pros and cons (yes, even the first one!). I’m happy to talk about what the advantages and disadvantages are with anyone who has questions, but I won’t do that here. Why? Because after dabbling in them all, I truly feel that there is no right answer. It all depends on the age of your children, your core beliefs about money and work, and (most importantly), which philosophy feels right to you. Because if you struggle with it and feel like it’s out of sync with the way you parent? You won’t stick with it. In the end, I don’t think it matters so much what you choose to do. I think what matters is that you pick a system that works for you and stick with it. As long as you are consistently teaching kids financial literacy and giving them opportunities to learn and practice finance skills along the way, your kids will be way ahead of the game when it comes time for them to live independently of you.

Here’s what we’ve done with our kids at various ages and stages:

Preschoolers

At this age, we didn’t do much. We basically paid for everything. We did introduce basic chores and responsibilities at this age, but they weren’t tied to money. I find in this stage, kids are eager to help around the house and don’t need any financial incentive to do so. See the chore list in the Resources section for a great listing of chores by age group.

Elementary

We began this stage using Dave Ramsey’s Financial Peace Junior with Elena. Along with financial lessons geared toward younger kids, Financial Peace Junior introduces the concept  of working for “commission.” You do your chores, you get paid. No chores? No money. This system works great  if 1.) You are committed and consistent with keeping up with some kind of chore chart and 2.) Your child is motivated by money. We were neither of those things. We could never quite find a system that we could keep up with, and Elena was never motivated by money at this age. She’d rather go without money if it meant never lifting a finger around the house!

So what do you do if you find yourself the same situation? Well, you could just give up, pay for everything, and never require your child to help around the house. But I’m guessing that if you’ve read this far, that’s not the plan you were looking for. Instead, we opted to still give an allowance, but not tie it to chores. You’re still giving your child the opportunity to learn about money, but taking the chore aspect out of the equation. Here’s the thing: every kid has their own “currency.” Elena’s wasn’t  money, so taking away her allowance did nothing for her work ethic. However if we took away screen time or friend time, she took notice. Please don’t do what we did and feel that this is somehow selling out, because you don’t have a chore chart and you’re not doling out money every time your kid dusts or empties the dishwasher. There are plenty of other ways to teach your kids personal responsibility!

One part of Financial Peace Junior we did hold on to was the Give, Save, Spend system. When the kids receive their allowance, they must put 10% into a fund for Giving, at least 10% in Savings (they can opt to do more if they’re saving up for something in particular), and the other 80% is for Spending.

Tweens

This year we took the system we’d been using for Elena and put it in overdrive. Once she hit 6th grade and was more independent, we found that she was requiring more money. Trips to Taco Bell with friends, ice skating on Friday nights, clothing she wanted (but didn’t need) … it felt like every day we were handing her money for something else. It was time to put her in more control of the money.

Through our bank, we set up a separate account for her with her own debit card. We decided to up her allowance quite a bit, and instead put the responsibility of how to spend her money on her own shoulders. Where previously her allowance was for discretionary spending, now she has to budget her money for some expenses. Things we previously paid for that are now her responsibility include: cell phone bill, school lunches, clothing (beyond basic necessities), and entertainment. We still don’t directly tie allowance to chores, but if she’s slacking we retain the right to cut her budget (which affects her social life, which is a HUGE motivator for her).

This has been a huge success for us. She’s already made some really mature decisions, such as deciding to pack her lunch more often in lieu of expensive school lunches, researching her cell phone plan to cut out unnecessary charges, and budgeting. These are the kinds of financial thinking skills that are so important as an adult. She’s made mistakes as well, making purchases she’s regretted as well as overspending early and not having money to do some things she wanted to do at the end of the month. These lessons are no fun, but much easier to learn at 11, when running out of money means no Baja Blasts with your friends, as opposed to not being able to pay the rent and getting evicted.

How much should you pay?

Ask and you’ll receive a hundred different answers. We give Eli (age 6) $10 a month. Elena (age 11) gets $125. You want to find the sweet spot between giving them too little (where they are discouraged and can never buy or save up for anything of value), and giving them too much (where they have no incentive to budget or save).

When should you pay?

Whenever you find is the time that you’ll consistently pay. We could never remember to pay on a weekly basis. Now we pay on the first of the month, when we do our personal budget.

Resources

What are some good resources for teaching kids how to manage their personal finances? Here are some of our favorites we’ve relied on through the years:

The Plan:

A fabulously comprehensive outline of what chores and responsibilities can be expected of kids at developmentally appropriate ages, via Merrilee Boyack’s “Training Children To Be Independent.” It includes some non-applicable (for us) religious aspects, but when modified for your own family it is extremely helpful.

Books:

Websites:

  • The Queen of Free: Written by my good friend, Cherie Lowe, she offers practical advice on saving money, getting out of debt, and teaching kids important money lessons.
  • The Simple Dollar: Covers all kinds of personal finance issues, including younger kids and money.
  • Life Your Way: I rely on this site for all things home related, but Mandi has some great ideas on kids and money, as well as some useful printables if you’re looking to utilize chore charts.

Are we doing it perfectly? Of course not, and you will most likely find a different, better way that works for your family. But hopefully you’ve found something helpful here, or have been inspired to finally get moving down this path with your kids. The only wrong way to teach your kids personal finance skills is to never teach them anything at all.

How are you helping your kids learn this essential life skill? Where have you struggled, and what’s worked especially well for you?  

Looking for more resources? Check out our board Life Skills Every Kid Should Know on Pinterest!

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Comments

  1. I like that you’re having Elena be more responsible for her own expenses. Hmm will have to think about this more! We choose not to tie chores to allowance, for a few reasons. We have been known to withhold allowance when a child has been careless with their belongings to the point of something needing to be replaced, essentially forcing the child to pay for the replacement.

    • We’ve been working on this with Elena for close to 6 months now and it’s really working well. Just the other day she asked if we could add more money to her account, as it was getting low … only payday doesn’t come around again until June 1! It’s a lesson we’ve all had to learn, only most of us learned it much later in life.