Teaching children to manage money

We’ve been giving our 9-year-old daughter, Madison, money amounting to $25 a week since she was 5.

If you’re a parent or grandparent, you may think we’re nuts. And you may believe we’re spoiling the poor child.

Give me a chance to explain.

I’ve been managing my personal finances using Quicken financial software since my early 20’s. We track absolutely everything! – bank accounts, mortgages, escrow accounts, investments, IRAs, 403b, college savings, credit cards, debit transactions, loans, and more. We even track the cash that we carry and spend – which isn’t much.

We track these items by predefined accounts and categories to help me evaluate my spending and budgeting. (I’ll write more about how we do this soon.)

A couple of years ago, I noticed that approximately $200 each month was being spent at McDonalds, Dollar Stores, Wal-mart, and a few other stores. And nearly all of the transactions were allocated to “Madison – clothing” or “Madison – Spending”. We set these categories up to help us distinguish between Madison’s spending and money that Sarah and I spend.

After a little digging, we found that Sarah and Madison we’re spending “quality time” together most afternoons when Sarah would pick up Madison from school. And quality time wasn’t the only thing they were spending.

It didn’t take us long to figure out that these expenses are only going to escalate as Madison grows up.

Since we hadn’t budgeted for these extra expenses, we began working on a plan to continue the mom-daughter bonding time while creatively reducing the spending.

Sarah and I had several objectives for the new plan:

1. Plan one-on-one time for me and Madison
2. Help her learn to lead by allowing her to select several chores which would become her responsibility in our home and family
3. Teach her to accept additional responsibility for her room, toys, etc.
4. Provide her a set amount of money to pay for all her personal expenses – clothes, shoes, activities, toys, gifts for friends, snacks, etc.
5. Teach her to give – first, regularly, and significantly
6. Teach her to save – although we haven’t pushed this too much. It’s been more important to us for her to get used to having a set amount of money that runs out when she spends it.
7. And, of course, cut spending by at least $100 each month!

Saturday breakfast dates

I had been wanting to set up weekly one-on-one time with Madison, so this gave me the perfect opportunity. Madison and I now go out for breakfast every Saturday – occasionally we’ll meet up with another dad and daughter. Since she get’s to choose where we go, we frequent Dunkin Donuts, Chick-fil-A, Bojangles, IHOP, Waffle House, even Huddle House.

It’s during these times together that Madison learned how to tell time, the importance of a firm handshake, to look someone in the eyes when speaking to them. And on our first date, I explained how we were going to help her learn to manage money.

Learning to lead

When Madison and I sat down in Bojangles, I had written out two lists. The first was a list of chores – I asked her to select several chores which would become her responsibility in our home and family. Here are the 4 she selected: Make bed, clean room, laundry, water plants (we have a lot of them – 34 I think).

She’s done great – in fact, yesterday she got a little miffed at me for watering some of the plants for her. Oops.

The plan

The second list was a simple plan for her finances: $25 Weekly – $3 God, $2 Savings, $20 Spending. Madison can use the spending money for whatever she wants. Yep, that’s right – it’s her money to spend however she wishes.

At first, as she would go shopping, we would ask her, Are you sure you want to spend all of the money on that doll? Do you want to save some to put with your money for next week?

Rarely, do we ask her these questions now. She’s figured out that if she wants new shoes or a new outfit, she can plan to get it when she “get’s paid” on Saturday.

We printed the lists for her to hang on her bedroom wall.

Make it work

When we initially implemented the plan, Madison and I visited the bank every Saturday morning after breakfast. During these visits she learned how to fill out a withdrawal slip, use the ATM, put into practice looking at the tellers while speaking to them. We would withdraw the money for church and for spending and then transfer $2 to her savings account.

We did this for several months – then it got boring – for her and for me. Also, the church we attended did not have an offering opportunity during the children’s service. (They were missing a great opportunity to support parents and families who are teaching stewardship to their children.)

So we revised the plan – we now withdraw $20 for Madison to spend. She let us setup an automatic transfer for the $2 to her savings and she lets us take care of her offering for her.

A few tips

It’s important to use actual cash when working with your children. Don’t try to keep track of their spending on a sheet of paper. It won’t work. Inevitably you’ll miscalculate which may cause a problem for you or the child.

We bought Madison her own wallet (actually she probably bought it with her own money). Sarah hangs on to Madison’s wallet throughout the week. This way they have it when they’re out together and need it. Madison evens keeps her receipts in her wallet – probably because she checks to see if we’re skimming her bankroll.

The future

We have already told Madison that when she begins working and saving money, we will match dollar-for-dollar whatever money she saves for her first car (up to a preset amount).

When Madison was born, we opened an education savings account for her. The money we save each year will be used to fund her college education.

We also bought a rental property the year Madison was born. This home will be paid for before Madison is married (She thinks she has to wait until she’s 40). We plan to sell the home to pay for her wedding and to help her and her husband as they begin their life together.

These are not perfected practices – they simply represent where we are on our journey. I’m sure we’ll continue to tweak them along the way.

What have you tried that has worked for you and your children? If you have older children, how have you helped them learn to better manage finances? Take a moment to share your thoughts in the comments.