The Financial Birds and Bees

Parenting….who knew these kids would be so dependent on us.  We have to feed them, clothe them, and make sure they don’t die.  Worse yet we have to have discussions about life with them…..force them into contracts where they promise not to date until 27 (although my lawyer tells me that since Ethan was only 7 when he signed the contract it won’t hold up in court).  FYI he broke the contract at age 8, granted the date was only to the swings but still!

 

While our parents covered the basics of life for some reason money and financial responsibility seem to get passed over.  I know that my parents never had any real money discussions with me growing up, although my dad taught me how to do my taxes and my mom taught me how to shop really fast.

*Author note: my mom learnt real fast how much money my sister and I could spend on clothes in an hour*

*Author note: my mom learnt real fast how much money my sister and I could spend on clothes in an hour*

This is why so many of us as adults don’t know how to properly budget.  So how do we teach our kids about money and financial responsibility during a time when all they do is spend ours and believe that there is an endless supply?  We need to get down to the basics.  I personally would like to take a page from Canada’s Money Goddess and financial writer Gail Vaz-Oxlade (little bit of a fan girl here) and her magic jars

 

This is budgeting in its simplest form and it is especially brilliant for kids.  A budget is a simple formula:

 

Income – Expenses = Spending/Saving Money

 

So in order to teach kids about money and how to manage it you need to give them some…unless they already have a job.  This is where the almighty allowance comes in, now the question is do you tie the allowance to chores or not. This is your personal choice.

 

My son has his regular chores and he has an allowance but we don’t withhold money if chores aren’t completed.  Every 6 months we have a performance review and discuss whether or not he is meeting or exceeding the expectations of his job, whether the cost of his expenses are increasing and therefore we are going to need him to do more for no raise.  Not only are we teaching him about money but we are preparing him for the real world.  Okay we don’t do that but he does receive an allowance and we use the magic jar theory.

 

Step One:  Give child an allowance.  There is no rule of thumb for the amount so do what works best for your family and budget.  If you are looking for a starting point, I use their age plus or minus a dollar.  I like the concept of a weekly allowance as kids are better able to conceptualize time in days vs weeks or months.  Plus budgeting for a week is easier than a month. 

 

Step Two: Start with 2 jars/piggy banks (jars are more visual) and label them; spending and saving.  The idea being that the money in the savings jar is for the future – whether that is for a new lego set or bike it doesn’t matter.  The spending jar is for WHATEVER they want to spend it on for the week. 

 

Step Three: When you give them their allowance, a portion goes in the spending jar and a portion in the savings.  Ideal savings percentage is 20% of your income.  So of the $10 allowance; $8 goes to spending and $2.00 to savings.  Now they can see that they have $8 for the week and as the saving jar fills they can see the progress that they are making towards their goal.

 

Step Four:  Give your child the responsibility of managing their money but be there to provide guidance.  If your kid wants to blow their $8 in the first day on slurpees and candy, let them.  However you should remind them that they can’t buy anything else for the week.  Soon they will begin to think ahead regarding future spending and adjust their management of the money.  I also find that letting them carry the money while they are shopping makes them stop and really think about the purchase and how much they want it. 

 

*Author note: Ethan debated over two different Hot Wheels cars for 20 minutes before looking at me and saying “Actually mom, I have enough cars.  I don’t need another one”.  I damn near fell over.  If this would have been my money he was spending he wouldn’t have thought twice about it and probably demanded both cars.

 

Step Five:  When the week is over see if there is money left over in spending, if there is give your child the OPTION to leave it for next week or move it to the saving jar. Explain that by moving it to savings you are going to reach your goal of saving for your bike, lego or whatever faster. 

 

Repeat each week.

 

The most important part of this is that you are there for guidance only.  Sometimes the best way to learn is by making a mistake.  This is especially true as your child gets older.  When there is no money to hang out with friends, they will realize the importance of budgeting. This is the basic building blocks for successful money management as a budget is the base of all financial planning in the future.

 

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Another key factor is your discipline as parents not to cave and open up your wallet if they run out of money.  Ethan is 8 years old, so his spending money is for candy, smalls toys, things he wants not what he needs.  As much as I would like him to chip in for groceries, it just isn’t possible.  You must also be there to remind them of what they are saving for so they don’t “dip in” to that jar for other reasons.

 

Now I am going to let you in on a little secret….there is an adult version to this.  I personally use the jar theory but with bank accounts.  I am not lying…ask my account manager.  Budgeting is easier in shorter time frames but also when you can compartmentalize it.  I have three bank accounts:

 

Bills/Expenses:  Pay cheques are deposited here and all our super un-fun adult expenses are paid from here.  Bill payment dates are aligned with paydays.

 

*Author Note: I cannot stress enough how important it is to line up bill payments with paydays as much as possible.  Not only does it make it easier to see what is available to spend after bills are paid, it ensures none are missed because you forgot your phone bill was due 6 days after you get paid.*

 

Spending: We budget per pay day and put money in this account every payday.  This covers groceries, gas, entertainment and misc expenses.  If the money is running low and there is four more days until payday that means no box of wine for me.  Just kidding…..we don’t need fruit.

 

Emergency/Travel:  We put a set amount aside each month.  This builds up and then the underground sprinkler busts, then we build it back up and go on a trip.  If at the end of the month there is excess in Bills/Expenses or Spending it gets put in here too.

 

I have actually labelled the accounts by those names so that is what I see when I view my accounts online.  This helps me to visualize what the purpose of this money is for.  This also makes it easier to be personally accountable when it comes to spending and saving and to keep my hand out of the cookie jar.  I can mentally slap my hand and say:

 

“No Caval!  That money is for camping…not that new Matt and Nat purse you are drooling over.  Be strong!”

 

So if you are looking for an easy way to budget as a responsible adult this is a great way to start.  Financial responsibility doesn’t have to be difficult for you or your child if you have a solid foundation to start with.  It is important to remember that accountability is key and that you alone will deem whether you are successful by being accountable with your actions.  The first place where people get in trouble is by spending more than they have.  This creates a reliance on credit/debt, which depending on the type of credit might not be a good thing.

 

 

Do you use the jar theory or do you have another method you have used to teach your kids about money?  Share it in the comment section below!!

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