As a professional financial advisor and father of three young children, I’m often asked about ways to teach kids about money and good savings habits. With the lazy days of summer ahead, I consider it a great time to share two of my favorite “real world” methods for teaching kids to be smart about money, all of which get high marks from parents:
The Three Jar Strategy
For younger kids (under age 10), the “Three Jar” strategy is a great way to help them understand the main purposes and needs for money. First, gather and label three jars — one for Spending, one for Saving, and one for Giving — to help kids visualize how much money should go where. Make sure the Spend and Give jars are clear containers, while the Save jar is not. This allows kids to get in the habit of saving “out of sight, out of mind” and creates the discipline to not be tempted to dip into savings when they need extra cash.
Second, funnel 10 percent of all ‘earnings’ into the Giving jar and have your child give that money each month to a charitable cause of his/her choosing (local food bank, animal shelter, fire department, place of worship, etc.). This will help instill a lifelong love of philanthropy and giving back to others.
The Duffle Bag Exercise
For older kids (teens and preteens), it’s important to introduce them to budgeting and understanding how much money it takes to run a household on a monthly basis, as well as how much work is involved to sustain a family. One idea that I love is the “Duffle Bag” exercise. This one is extremely impactful but takes some planning to pull off.
The first step is to fit one month’s household budget (in $1 bills) into a duffle bag, as close to the dollar amount as possible. Next, gather the family around the dining room table and parse out stacks of cash to illustrate how much the household spends in each category: Mortgage, Utilities, Car Payment, Gas, Cell Phone Bill, Groceries, Sports, Fun, etc. The excess after those expenses are pulled out (or the lack thereof) can be a shock to a teen. Often this exercise will inspire a new appreciation for mom and dad, and their many sacrifices. It might also prompt a teenager to contribute to his/her own expenses to help the family.
It's never too early to start teaching good savings habits with your children, as well as the importance of “needs” versus “wants.” Financial skills are equally as important as the other values and character traits we instill in our children. Start today!
“Do not save what is left after spending, but spend what is left after saving.” Warren Buffet