Children and young adults have been born into a double whammy of a financial mess. Not only do they lack financial literacy skills – they are born into a consumer society that is constantly telling them they have to spend money to be happy.
They are told to spend, spend, spend, yet don’t they have the financial literacy skills to do their spending responsibly.
Then as they get older the credit vultures step in with schemes like Afterpay and ZipMoney, and then credit cards and pay day loans and personal loans for cars. Before you know it, our young adults are drowning in debt.
And the worst part is our children, teenagers and young adults have no awareness of why they are broke all the time because they are too young to question the cultural norms that trap them.
We need to help children learn financial literacy skills with an awareness of how participating in a consumer society is bad for their bank account and for the environment.
If we can show children how to manage their money, and buy less stuff – the world will be a much happier place.
Making Money Visible
We live in a cashless society and money has become invisible. We pay for items with tap-and-go. We use online banking. We transfer money to each other using the Internet. Because of these technological changes, children have difficulty understanding money.
Money is often an abstract concept for children and for this reason we need to make money visible when teaching financial literacy.
Mathematical concepts are best introduced to children using tangible manipulatives – real life items that you can see and touch. Money is no different. To understand money a child needs to see it, touch it, add it up, subtract it, put it into piles of a particular amount, become familiar with it.
Therefore, to help your child understand money you’ll need to provide them with real life money.
This is where pocket money goes a long way in developing financial literacy. Children get real life experiences by doing jobs at home to earn their own money.
Of course, there are chores children should do around the house without expecting money in return. However, to help them develop a good work ethic and to value money which required an effort to earn – children need age appropriate household jobs.
Earning money also needs to be realistic, achievable and not overwhelming. The book ‘The Barefoot Investor for Families’ recommends children negotiate with their parents to do three jobs each week.
For example, my five year old sets and clears the table for every dinner meal; makes her bed every morning; and, cleans her room once a week. Her seven year old brother unstacks the dishwashing machine whenever it needs doing; feeds the chickens, guinea pig and the dog every morning; and, cleans his room once a week which includes vacuuming.
They track their jobs using the Barefoot Scoreboard and do each set of jobs for five weeks. At the end of each five week block, they then renegotiate a new set of jobs – or keep their old jobs.
It’s important that your child marks off their jobs themselves.
Why? You want to give them the satisfaction that comes with achieving a win.Scott Pape (The Barefoot Investor)
You can download a free copy of the Barefoot Scoreboard from here.
It’s up to you, the parent, to decide how much to pay your child each week. If unsure, a good general rule of thumb is to pay one dollar for each year of age. For example, a seven year old would receive $7 each week – provided all jobs are completed as agreed.
Budgeting Kid Style
Now we get into some great personal development to equip your child to be ready for many of the financial challenges of adulthood.
Through budgeting, children learn to set goals and in doing so understand delayed gratification.
Choosing to have something now might feel good, but making the effort to have discipline and manage your impulses can result in bigger or better rewards in the future.Psychology Today
Children learn to be forward thinking with their money by making conscious financial decisions. They develop self regulation of spending and impulse buying.
By showing your children how to manage money, you’ll be giving them the financial literacy skills that will change their tomorrow.
How It’s Done
Budgeting kid style is simple: give them three empty glass jars such as cleaned jam jars.
Name each jar Spend, Save and Give. It’s a good idea to allow children to decorate their jars as it gives them ownership and a sense of responsibility.
In ‘The Barefoot Investor for Families’ book, the Spend jar is titled ‘Splurge’. I much prefer to use the word Spend for young children as they can relate to Spend easier than Splurge.
Once a week, if all jobs are completed – it’s payday! Children can divide their money into their jars however they like, but they must put money into each of the three jars every week. Now there’s some great learning in this activity!
The Spend Jar
This jar often ends up becoming the most used jar.
It’s where the money goes for your child’s day-to-day spending of their choosing, within reason.
For example: they may want to buy a chocolate frog at the shop, or a silly bouncy ball from a vending machine that will end up lost under the couch, or a cheap toy that you know will be broken within the week. You get the idea – it’s their spending money.
Through making decisions and misjudgements with their Spend money, children learn financial literacy skills via safe trial and error. They learn about the value of money (cheap plastic toys break easily) and they learn self-regulation of spending (do I really need this right now).
This jar will help turn your kids into well-adjusted, savvy spenders.Scott Pape
When my children started with the three jar system, they were putting the majority of their money into the Spend jar – and spending it all. It didn’t take them long to figure out that there were much better things to do with their money than spend it on meaningless wants.
We’ve also had great conversations that when your Spend money runs out, that’s it, there’s no more until next payday. And you can’t take money from your other accounts to top up your Spend money.
These chats naturally flowed to talking about Mum and Dad’s Splurge account (the adult version of the Spend jar). One particularly memorable moment was when we were out as a family and the kids wanted to go to the cafe for morning tea. We explained that we couldn’t eat out because we had no money left in our Splurge. The kids looked at each other with full understanding, said okay and were completely fine with being told not today.
The Save Jar
Also known as the Smile Jar.
The Save jar is where children put their money to save up for whatever it is that makes them smile.
Children make and set savings goals which are talked about and written down on their Barefoot Scoreboard.
For my five year old, it was a LOL Doll, then a Fingerling toy and then she didn’t know what else she wanted. So we started discussing how she already had plenty of toys and that owning more stuff isn’t necessarily going to make a person happier. She was dubious when I spoke about saving up for experiences instead, but she’s giving it a go. Currently she’s saving up to buy an entry into a glow in the dark mini-golf venue. She’s also learning that we don’t need a whole lot of ‘stuff’ to make us happy.
My seven year old set himself an enormous goal of buying a motorised Lego train that ran via remote control on a Lego train track. The mother in me wanted to talk him out of it to protect him from failure. His goal seemed too big. I truly thought at $7 a week, remembering from his $7 some money had to go into each jar every week, that his goal would not be achievable. I also didn’t want to be a helicopter parent and decided to keep my concerns to myself.
He stuck to his goal for many months and soon clued on to the fact that if he put more money in his Save jar and less in his Spend jar, then he would be able to save more money sooner. Then Christmas came along and as the family knew about his savings goal, he received money instead of gifts. And then there was more saving to be done.
When the day came he realised he finally had enough money to buy a Lego train, he couldn’t have been prouder of his achievement.
Using a Save jar taught him:
- To set goals
- To realise that if you spend less, you can save more
- To self regulate his spending
- The art of saving
- To stay focussed on his goal
- Delayed gratification
The Give Jar
The purpose of the Give jar is to ‘Break the Brat’.
Let’s face it, if you’re reading this contemplating paying pocket money to your children, then it’s likely you are living a comfortable lifestyle. And the best way to make your child aware of their privileged circumstances is for them to realise there are people less well off than them.
Giving money or time as a volunteer has repeatedly shown to enhance the attributes of generosity, kindness and self-esteem. Helping others can make you feel happier and more fulfilled. All great reasons for your child to have a Give jar.
Out of all the jars, this was the jar my seven year did not want to put money in and was adamant he wasn’t going to.
Even though myself and Mr Hack regularly gave our time to the community and donated money, our son had not connected any dots as to why we did. I realised it was a failing on our part for not talking explicitly about ‘giving’.
As a family we have been the recipient of much generosity over the years – another reason why we are keen to ‘pay back’ to the community as volunteers.
We sat Mr Seven Year Old down and had a chat about all the times we had stayed at the Ronald McDonald Charity Houses, the many times we had received support from the charity HeartKids and how Mr Hack’s workplace gave us a large sum of money during a particularly stressful time 300km from home at a children’s hospital. We asked him where he thought all the money had come from that Daddy’s workplace and the charities had given to help us.
He had no idea.
It was explained to him that people give money to charities to help people in need. Our son had a real lightbulb moment that day when he suddenly realised all those rooms we stayed in at the Ronald McDonald Charity Houses was paid for with money that other people had given. The dots were finally connected.
He has since, very proudly, donated his own money to World Vision to buy school pencils for a child in need; given money to the local Carevan to help feed the homeless; and, donated to Caritas. I look forward to seeing where he will donate the money from his Give jar next.
He is also keen to volunteer his time and is excited about being a volunteer Marshal at parkrun in a few weeks time.
If all the financial literacy skills your child ever learns is the three jar system – then they are still miles ahead of their peers in managing money.
‘The Barefoot Investor for Families’ book lists other strategies for guiding children with financial literacy. Many of the techniques are great for teenagers. The contents list contains:
- How to protect your kids from bank robbers (zero-fee, high interest savings accounts)
- The family treasure hunt (selling off unwanted stuff, plus understanding advertising)
- The grandparent’s dinner party (learning to cook)
- Breaking the brat (volunteering and giving)
- The lazy $100 challenge (saving money on electricity, fuel & services)
- Why your kids need plastic surgery (saying no to credit cards)
- The life changing magic of flipping burgers (part time jobs)
- Barefoot Betty (work ethic)
- Uncle Scott’s $453,329 gift (superannuation)
- The Barefoot ladder (saving up for their first home)
Using the three jar system has made a major difference to our young children. It has vastly improved their understanding and management of money.
Without a doubt, their financial literacy knowledge has increased dramatically. Their learning about finance continues to take a positive step forward with every conversation and experience they have with money.
And not only that, they are also gaining insight that being a mindless consumer is bad for their ‘jars’ and damaging to the environment.
What You Can Do
- Organise three jars for your child
- Negotiate three jobs with each child
- Help your child choose a savings goal
- Pay pocket money once a week for jobs completed around the home
- Talk about money with your child
- Let them make mistakes with their money and then problem solve together for a solution
- Discuss advertising
- If you need help with your own money, read about ‘The Barefoot Investor’ for adults
- If you already have a good handle on your own finances, consider taking steps towards gaining financial independence
Once your child has a solid grasp of money, you may want to look into getting them a bank account with a keycard.
Not sure what developmentally appropriate finance topics to discuss with your child? Have a read of What’s Your Financial Literacy Age.
All topics are divided up into different stages by age. The end of the article has links to financial literacy quizzes for the adults.
What financial knowledge have you already passed onto your children?
Please leave a comment to share the knowledge.