Google ‘how do I teach my kids about money’ and you will get pages of results offering different twists on the same theme – raising financially responsible children. Saving jars, passbook accounts, chore charts, spending money, tithing, straight up allowance, cash for odd jobs and more…personal finance writers tout various methods to achieve this goal.
Mr. TMC and I present the only 4 rules you need to raise financially responsible children.
- Give your children a job, not an allowance
Children should pitch in around the house without payment – absolutely! Everyone who lives in the house should pitch in cleaning bedrooms, emptying waste baskets, clearing dinner dishes, or whatever it takes to keep your household humming along. That said, children need access to money so they can start building their little PF muscles. If they are too young to mow lawns or walk the neighbors dog their only way to make money is with you.
Find them a job with these guidelines:
- It needs to be helpful to you. My children empty the dishwasher and load/unload the recycling and trash at the transfer station every week.
- They must do it without arguing or complaining.
- The jobs aren’t optional, they can’t decide the money isn’t worth it and walk away. I can’t quit my job. They can’t quite theirs.
- Save for retirement – now!
When you ‘hire’ your children insist that half of their paycheck go to retirement savings. Yep, 50%.* No exceptions. Here’s why: We tell children we want them to be “financially responsible”, learn how to “handle money” and “save for a rainy day” but does a 5-10 year old (or even a 10-17 year old) intuitively know what any of that means? No. We have to tell them what actions to take to achieve these goals and why they are important. There is so much value in gifting to charity, tithing to church or saving up for a $10 or $25 for a new toy, but really, is there any lesson more important than teaching your children that they -and only they- are responsible for their financial security as adults? No, absolutely none that I can think of. Obviously, I don’t expect my children to be financially independent at age 21 on this 50%. What I expect is that when they are out in the working world at 21 or even younger, they build their budget around saving 20% – 50% for retirement without hesitation because saving for retirement became a habit when they were young.
The stories and statistics about people over age 50 who have minimal retirement savings because they put off planning for their future are staggering – and sad. I don’t want my children to face that future. I urge you to start this now with your little ones so they get the hang of it. Retirement/financial independence savings for children is not an idea I got from someone else; it is something my husband and I came up with together. I haven’t seen this concept covered in any PF blog or book. So, I am either far ahead of the curve because I am freaking amazing. Or, I am bringing up the rear (I am open to the possibility but I am not relaxing this rule =).
*Mr. TMC and I feel strongly about having the little TMC’ers save the 50% but want them to have money left to spend. We purposely pay more than what we think the jobs are worth so that they can actually see money accumulating in their retirement and their spending accounts.
- Set expectations but also let them make mistakes.
Let the kiddos know early on if they need to budget any of their spending money for items you would normally cover. For example, will they need to spend their own money for the (oh-so-beloved-and-yet-soooo-dreaded) Scholastic Book orders or will you continue to pay (out the wazoo) for these? In our house the kids each have one device – a tablet and a kindle that are hand-me-downs from Mr. TMC. About a year ago we told them that when these devices break we would split the cost with them to replace it. Fair warning given, they were motivated to set aside some spending money so they would have their half of the money when the time came.
Now that you have set some expectations, give them free rein to spend as they wish. Offer guidance if you feel they are about to make a decision they will soon regret (like spending $25 on packs of Pokemon cards with the *hope* that one card will be a Mega) but then stand back and let them make their decision.
- Share your experiences with money, if age appropriate for your children (note: if money is a point of contention at your house think about skipping this part …no need to stress out the little ones.)
If you are focusing on achieving personal finance goals (paying off the house, saving for retirement, saving for a big purchase) share that with your children! Show them, tell them, speak openly about it and in a casual way. About a year ago we were looking at our retirement spreadsheet that shows our annual beginning balance, what we added, we made in compound interest and the total. Little TMC (age 12 at the time) wandered to the computer and looked over my shoulder and asked what we were looking at. It was a great opportunity to show her that we are working together on our financial security, that we save a big chunk every year toward retirement, that compound interest is our friend!
So, there you have it! We instituted this policy about 3 years ago and it works well for all of us. They have learned other fun lessons along the way … like how to handle it when your boss doesn’t pay you for 4 months. Whoops. Seriously, we didn’t deny we owed them we just had a hard time getting to the bank. Or my other favorite lesson …. how to ask for a raise. When they started clamoring for more money they huddled up and determined what they thought their effort was worth and why they should have a raise. I recorded the whole conversation. Cutest. Video. Ever.
Good luck! Let me know how it goes, I’d love to hear how this works for your family.