How do you teach kids about money–so that they understand what life actually costs?
Those of us who are blessed to be parents need to remember that we’re not raising children; we’re raising future adults. And one of the biggest ways that adults get into trouble is by messing up their finances. The more that we can teach kids to budget and teach kids to save when they’re young, the more ready they’ll be to launch well when they’re 18.
And I think one of the biggest gifts that we can give teens is to let them understand what life costs. So today I’d like to share 7 ideas for teaching kids about money.
1. Make allowances based on budgeting
Instead of paying them an arbitrary amount based on their age, set a budget where they’ll have to cover certain expenses.
When our girls were 13, we started a clothing allowance where we required them to buy their own clothes. At 14 and 15 we added shampoo, deodorant, toothpaste, etc. We figured out how much they would need in a year, and then figured out how much that would cost, and divided everything by 52. That’s how much they got a week.
When they needed things, they had to buy it themselves! It taught them how to budget before they left for school.
If you’re paying a portion of their cell phone bill, or if you’re paying for internet that they’re using, you can also “give” them this in their allowance, but then present them with a bill every month for their portion. So if your internet is $50 a month for 5 people, and cable is $60 a month for 5 people, and their cell phone is $40 a month, then they owe you $62 a month ($10 for internet, $12 for cable, and $40 for their phone), or $744 a year. That means that every week they get an extra $14.30 in their allowance, but that will end up coming back to you. It may sound like an extra step, but it’s good for them to see how much the life they enjoy costs.
2. Pay for the basic version–they have to save the rest
When setting your amount for allowances, decide that you will pay for the basic version or “on sale” version of an item. You’ll pay for cheap jeans, or for the price of shirts you can get at a consignment store or at year end sales. Then, if they want something more than that, they’ll have to earn the money themselves.
3. Use FamZoo as a family bank
I absolutely LOVE the idea behind FamZoo!
Here’s how it works. They have an online system where you can track your kids’ allowances, payments for odd jobs, money they owe you, or whatever else.
And if you want to take it one step further, you can even order prepaid Mastercards that the parent can load up. The parent has the primary card, and then you can transfer money–with no fees–to the kids’ cards. Give them their allowance, pay them for jobs, even give them a parent-assigned interest rate to encourage them to save. Here’s an easy way to transfer money to them, but then “bill” them for that cell phone or cable bill.
You can even create an account for charity, so that you can pool all your kids’ charity money into one account so there’s more to distribute every few weeks.
And this helps kids see a record of what they’ve purchased and what they’ve saved. I think it’s awesome.
If you don’t feel comfortable giving your child a card, you can also use their IOU system, where the parent can keep track of allowances and payments. This would have come in so handy for me! I remember lots of times I was out with Katie and she’d want a chocolate bar, and I’d tell her that I’d buy her one, but then she’d have to pay me back out of her allowance. And then we’d both forget. Here’s a way to make sure no one forgets!
The kids can also see their own accounts on their phones or iPods, so they always know how much they have.
One of the biggest drawbacks I found for giving my kids allowances was that I often didn’t have the right cash on hand. If you can do it through a card system or an app, then it’s automatic and things don’t get forgotten.
Check out all about FamZoo right here!
(Just so you know, there’s a freebie coming up!)
4. Play the “what does this dinner cost”? game
Every night at the dinner table try to get the kids to figure out what the meal costs–how much is the rice and the peas and the carrots and the meat?
They’ll soon see which meals are super cheap and which ones are super expensive! You can even start to give a small “prize” to the kid who guesses the closest.
5. Require tithing from the time they get an allowance.
When our girls were 3 we started them with “jars”–spend, save, and give. And we gave them their money, and then they had to divide it into the jars, so that they could physically see that 10% was going towards giving. Then every few months we’d decide where to give that money.
To us, tithing was non-negotiable. Until they were 18, they couldn’t refuse to tithe. Honestly, though, because they started so young they did it willingly. And because it became a habit, they still do it now that they’re on their own.
There really is no greater lesson you can teach your kids than how to give!
6. Have the kids make the budget one month
Have all kids who are 10 and over participate in this one together.
Give them your budget (you can download a free budget worksheet in the next step) with your income and all of your fixed expenses (insurance, car payments, property taxes, etc.) already filled in. What you have left over is your disposable income, and that has to cover groceries, health and beauty, entertainment, gifts, eating out or savings for upcoming needs. Once they figure out how much is disposable, have them divide the remaining money up into these various categories.
Then every night at dinner talk about how you’re doing, and take a look at what’s left in the envelopes. If they want to go see a movie as a family, for instance, and there’s nothing left in entertainment, then where will we take the money from? Let them make the decisions!
7. Do the Backwards Salary Builder Exercise
Most kids have no idea how much money it costs to have the kind of lifestyle they want. And they also have no idea how much most jobs pay. So no wonder so few kids are motivated to work hard in high school!
I remember when I was 19 I got a temp job in the summer making $15 an hour. I thought I had it made. I was honestly tempted to not return to university that fall. But while I thought $30,000 a year was a ton of money, I had never had to pay for a nice apartment and a car and all my food before.
Sometime BEFORE their junior year of high school (grade 11 for my fellow Canadians!), when marks and electives start to really count, set aside a week when you’ll assign them budgeting homework. Here’s what you’ll do:
- Ask them to go through the real estate pages and find the kind of house they’d like.
- Look that listing up online, and find the asking price, the property taxes, and the utility bills (these are usually included in the comprehensive house listing).
- Use your bank’s online mortgage calculator (just google it; it should pop right up) to figure out the monthly payment. For instance, a $200,000 mortgage at today’s interest rates amortized over 25 years has a monthly payment of $1,139.
- Now calculate the total housing costs. Add up the monthly mortgage payment, the property taxes, utilities, and throw in some insurance. For instance, if property taxes are around $300 a month, insurance is $100 and utilities are $250, then your total housing costs are $1,789 a month.
- Figure out the annual salary needed to support that house. When banks give out mortgages, they decide that housing costs shouldn’t exceed 30% of your income. So housing costs of $1,789 mean that you would need a family income of around $6,000 a month, or $72,000 a year.
Now you have something to work with! And here is a free worksheet to make this exercise a breeze!
Sign up to download this FREE
Backward Budget for Teens!
Is it worth it to pay to go to school for a 3 year college diploma to be a social worker if the highest salary they make is $38,000? Is dropping science a good idea if jobs as electricians pay so well, and it’s a career I’d enjoy? Help them to see the future!
What if they feel called to go into a job that doesn’t pay very much–say a youth pastor, or a music leader, or that social worker? That’s fine. You never argue against God’s calling! But it’s still good to know up front what your lifestyle will be like, so that they get used to the idea that they may not have everything that their peers will.
This exercise isn’t meant to say, “you want a great lifestyle, so you’d better make a big salary!” Instead, it’s meant to say, “let’s get an idea of what an average lifestyle costs, so that you understand money.” It’s absolutely fine to aim lower–and in many cases God calls us to that. And we all can make smart money decisions that let us live on less. But many kids don’t even understand how much life costs, and we need to remedy that.
Kids won’t learn about money unless we give them real life experience with money–and talk about money a lot. It’s one of the best lessons you’ll teach your kids!
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When my son was real little, his dad was working at a job making $10/hour, so his dad taught him how many hours things cost. Rent was “a week and a half of work”. New video game? Daddy would have to work an extra half day…would you rather daddy work extra snd buy the game, or come home early and play with you a game you already had? (He spelled a lot of overtime just to get by…time with dad almost always won) Now that he’s older and we’re a little more settled, this isn’t as big of a motivator, but he honestly does understand how hard we have to work for things
That’s an awesome idea! I love that. And once teens get part-time jobs they start to see it for real. If they’re making $10 an hour, and they want a new pair of designer jeans, is it worth an entire shift? When they think of it like that they understand what money means!
How do ya’ll do allowance? I feel we shouldn’t give allowance for everyday chores like cleaning their rooms, doing dishes, washing clothes, etc because those are everyday responsibilities in life. I’m looking for ideas. Thanks!
Here’s what I said in my book To Love, Honor and Vacuum: I don’t give allowance for things that they need to do FOR THEMSELVES: making their bed; putting their own laundry away; keeping their bedroom tidy. But if they do chores that contribute to the family (like doing the dishes, setting the table, cleaning the living room, cleaning a shared bathroom), then it’s good to share in the income of the family. The family works together and benefits together. Does that make sense?
I should also have said–I’d distinguish this from other forms of allowance. When I was talking about a clothing allowance or an allowance for toiletries, they get that no matter what. But an allowance that’s based on the chores they do they should only get if they actually do their chores!
This is good – thanks for sharing these tips! We have two boys out of the house & one of them seems to get budgeting & the other is clueless. We could have done a better job teaching them. Still have 2 at home. I see budgeting in their future.
My kids are all under ten but we use a ticket system to “pay” them for daily chores. If they are ready for school on time, brush their teeth, complete homework, empty the dishes, etc. , they earn a ticket (up to three a day – morning, afternoon and evening). Those tickets can be traded in for tv privileges, sweet snacks, computer time, and other such “unnecessary items. Or they can save the tickets and trade them in at the end of the week for money. It has been interesting to see how my kids personalities play out in how they choose to use their tickets. Oh and I also reserve the right to take away tickets if attitudes are not in check.
Oh Sheila, I love these ideas! One (funny) caveat about the clothing allowance… certain boys I know could care less how ratty their clothes get and would rather spend a “clothing” allowance on other things, so that one may work better for some kids than others! Or restrict it so the clothing allowance can ONLY be spent on clothing 😀 While I’m thankful my boys are not overly focused on appearance, sometimes they need a bit of a push!
The two that have hourly jobs are seeing it for real, as your first commenter said. For instance, “Oh, car insurance costs me ten work hours a month – that’s a lot!” Sure is.
Thanks for all the tips!
Julie
Glad you like the tips! And that is funny about boys. 🙂 Yes, you’d have to be really careful about that…
This is great – thanks for the ideas! My kids are only small still (5, 3 & 2) so a lot of this will only really become useful in a few years, but I want to try & start teaching them responsibility while they’re young. I can probably start something simple for my eldest.
Oh boys. Wonderful illustration. In 10th grade my choir went to Europe on tour. Most of us got some kind of allowance. I probably didn’t even spend 10% of what my dad gave me. One boy spend his entire allowance on a brand new graphics card about the moment we got out of the airport. I’m not sure what he ate, but he knew exactly what he wanted and he went for it.
Calculating what you’d need to make for the lifestyle you want is a good idea. But you should take it a step further. You should also look at careers that will give you that kind of money and think about how that will impact your life. What will you need to give up/ sacrifice to get there? I read an excellent article about that just the other day. Don’t ask kids what do you want, ask them what pain they are willing to endure. That helps them see priorities and what’s important to them. Much more practical than the ” you can be anything you want” message that’s floating around.
We do so many things like mentioned in the article. We do a clothing allowance for our teen girls of $25 every 2 weeks. We also give them allowance, their age, every week. Part of that goes to support a child through World Vision. They each got to pick out the one they wanted to sponsor. 1/2 their allowance (and all earnings) goes in their savings at the bank. When they turned 14, they each opened up a teen checking account with a debit card so they can start going shopping and use their card and learn to budget. We live beside an outlet mall so they get a lot of clothes shopping. Second daughter keeps saying “I need new jeans”. My response, “Go buy them with your clothing allowance”. It takes the power struggle out of it.
They are 15 and 14 and do a lot of babysitting, even working for 2 churches doing childcare for meetings. It allows their savings to grow quickly, and they can save up for big purchases.
I do dogsitting and second daughter likes to help me with that and earn money.
Oldest daughter is getting her license this month and will be driving my dad’s old pickup. I told her I will buy her gas (I get a deal on gas cards) and she can put .10 a mile in a jar for each time she goes somewhere that is not school or church youth group. That .10 a mile will pay for her oil changes. She just took a defensive driving course and is a very good driver.
Our goal is for them to go through college (if they choose that route) without any debt. They will need to work hard, we will help a little, and they need to choose a college they can afford.
My parents live with us and we each have house chores to keep the house running smoothly. The girls vacuum the whole house, clean bathrooms, and do cat chores. They also clean the dining room table and island. They have to straighten and vacuum their room every other week. They both are sloppy in their room but it does get cleaned up every other week. They are not allowed to keep electronics in their room all night.
That’s awesome, Diana! And thank you so much for sharing this. I love the idea about the money for oil changes, too! That’s awesome.
I love that you will consider salary and lifestyle in helping a youth chose a career. My mom always told me to go for a job I loved, and though it is valuable advice I would have loved to also hear about the financial side and the “sacrifice” side. I did change my original career path very early because it was not compatible with having children, I could have saved my first degrees’ money. Also I didn’t realize the financial consequences of my choices until recently : I married and had children young, volunteered abroad for some years and later chose a job that allowed me time with my kids… Whereas most of my peers chose more lucrative jobs, built big houses and are only starting to have kids now, in our early thirties. Though I definitely don’t regret my choices, I would have loved having a real talk about such things. I guess until I had my first baby I didn’t know I needed money to live ! 😉
It’s so true about boys….
DD has a clothing allowance. I’ve taught her how to keep track of it on a spreadsheet. We never hand her cash – that way the allowance can only be used as intended. Maybe we’ll change that when she’s older, but at 12 and easily tempted this seems the best way.
DS (15) does not have a clothing allowance. Once a season, DD and I drag him to the store and make him buy things that fit. He is learning to budget in other ways, though, as he does have several relatively expensive hobbies.
And all my kids (even the 5yo) are involved in financial discussions. It comes up with things like, “Why can’t we have pizza more often?” and I say, “Well, we could, but you would have to stop music lessons. There is only so much money, and we have to choose how we spend it.”
It’s amazing how young they can grasp that basic concept. 🙂
My husband, especially, love to talk with and teach our kids about money. Our kids are just 10, 8, and 5 but already our 10 year old knows more about what things realistically cost than I did when I graduated high school.
We currently pay our children a commission for different work that they do around the house. It isn’t a lot and it is partly based on age, just because our older than do a lot more than our youngest. We require, currently, that they divide all their commissions between saving, giving, and spending. For our youngest two, we do it for them, but our oldest we have taught her how to do it herself. We always require her to tithe 10% but she always end up giving a significantly more.
I have a question about this clothing allowance thing: What do you do if your kid decides to buy something completely inappropriate with her allowance? Lets be real, it’s not that hard to do. It’s actually quite hard *not* to do. Especially when they hit that weird 12-14 year old stretch when they’re a bit too big for kid clothes and too small for adult clothes and all the *tween* clothes looks like they are trying to dress the girls to go work the street corners.
My mom never gave us allowances of any kind. I still learned about money. She did teach me how to dress modest, yet pretty and to dress for my body type. And how to chose proper bra’s $50 a month is a little small if you have an “unusual” size and your bra’s cost $40 -$60 a piece.
Oh, that’s easy: you just make them return it. Or better still, you confiscate it. Just because it’s theirs doesn’t mean they get to wear it outside of the house, because you’re still the parent. Similarly, even if they buy a movie to watch on iTunes with their own money, if it’s inappropriate, you can still say no and delete it. If they realize you’re going to do this–they’ll stop spending their money like that pretty fast! 🙂
when our son was old enough to get an allowance. we started out with $10 every two weeks. he had to tithe 10%, also give and offering, also, save $2.50. we also took out taxes.$1.00 per payday. when April came around, we had him fill out a “tax return” (we would use a tax form we would print off the internet)then he would get a return. half had to go into savings then he could choose to do what he wanted with the rest.
These are excellent tips and I enjoy the input from everyone else. My oldest is 6 so this is very timely!
This is a fantastic post. So glad I found it. I absolutely love the lessons on picking your house and estimating how much of a salary people need to have to earn the lifestyle they want. I really wish the school systems would teach it. We would have much less of a debt crisis! Great work!
Thanks so much for the encouragement, Kelli! And I totally agree about schools. They SHOULD be teaching this stuff!
We have been unable to
Do allowances for so long as money has been so tight (things like clothing have happened only at tax return time ) we are about to be in a better position and I really want to start giving allowances (or commissions as Dave ramsey says!!) so they can learn to budget.
My 17 year old daughter is really great with saving and budgeting most of the time.
Each kid is so different! (I have 4)