Raising a financially savvy child

Our readers offer their advice about how to teach money management to children.

By GreatSchools Staff

Some of our readers cited the late John D. Rockefeller. Others quoted radio host/author Dave Ramsey. But the message was the same: many of you believe that kids should learn to give, spend and save. Here are the ways you're putting that formula to work in your families:

Give, save, spend

How Rockefeller got rich:

"I have a 1-year-old son," a California dad writes. "I learned this lesson from the life of John D. Rockefeller. They say his mom was a devout Christian. At the age of 8, little Johnny's mom told him to make three bags. This was his budget:

Bag 1 was for GIVING to GOD.

Bag 2 was for SPENDING on himself.

Bag 3 was for SAVING for something big.

Every week, his parents gave him $3. And every week, John D. Rockefeller put $1 in BAG 1, $1 in BAG 2, and $1 in BAG 3.

I am definitely going to implement this with my children."

What Dave Ramsey says:

"We use Financial Peace Jr. by Dave Ramsey (best selling author of Total Money Makeover) for our two boys ages 9 and 10," writes Tonya Gebhart of Alabama. "Dave uses the principles of GIVE, SAVE, and SPEND to succeed as children and as adults. In the kit, there is a chore chart, envelopes, directions and more.

"Our boys do some jobs for money and some jobs just because they are part of the family. At the end of each week, we give them what they have earned. They divide up their money into the appropriate envelopes. Now if they want to go to the movies or such, all we have to ask is, 'Do you have any money in your SPEND envelope?'

"We've been using this program for almost two years, and it works beautifully. These kits are available at www.daveramsey.com."

Household banking system:

Gina Barnett of Kansas has a detailed version of this plan for her daughter: "My 11-year-old gets a weekly allowance. This allowance is not tied to chores, although she can earn extra money if she does special chores not assigned to another family member. She pays the family for her keep by doing her chores each day like keeping up with the family laundry, room cleaning, bed made, feeding her cat, etc.

"She divides her allowance into 3 envelopes. Her $5.00 is sorted to tzedakah (the Jewish obligation to give to charity) $1.00, savings $2.00 and spending $2.00. She gives the tzedakah at Sunday school each week (or saves it until the following class session). She is allowed to spend or save her spending money. If she saves her spending money it cannot be re-diverted into spending. So if she chooses to save then it stays in savings. Her savings is then the major learning experience for her.

"At the start of each savings cycle, she discusses with her parents the item of purchase and a goal is set. She might want to buy something that costs more than she would normally get for a birthday or holiday. She is to stay on track without exception.

"Our family has a household banking system run by the adults. When she makes a deposit each week we will accept a deposit slip. When she has reached her goal, she must present us with a check for the amount to be tendered. Her check register must track all transactions. No overdrafts or loans are allowed. All deposit slips and checks must be completed fully and accurately in order to be valid.

"This allows her to set a goal and delay gratification. Impulse buying is eliminated. Planning for trips and leisure activity is clearly examined. Value of money is quickly learned and remains on her radar. She does not get to change her Savings goal unless a family meeting takes place and she presents her case for review. Goals are rarely changed.

"A second money-management task is a pretend check register that tracks money that is spent each day when she is with a parent. For example she writes the amount spent at the grocery store, gas station, post office, bagel shop and order-out pizza delivery, including tip. She might start with a pretend amount of $1,700.00 for the month. She must account for anything that comes out of our pocket, such as a quarter for a grocery store pony ride for little brother, soda pop, mortgage payment, utilities bills, insurance co-pays at doctor or dentist offices, music lessons, sporting fees, school lunch fees and so on.

"When the money runs out we have a discussion about how her checkbook is shut down for the month until the next deposit is made at the beginning of the next month. She is beginning to see the need to start to budget her money so that it lasts to the end of the month. She actively looks for ways to cut back or pay reduced prices so that the money last longer each month. She has discovered coupons, stores that offer double coupon days, used products and pawn shops.

"We are just now looking into teaching her about the stock market and compounding interest. We plan to buy a minimum amount of stock in a company she researches. She gets to pick the one to purchase with some influence from the parents. She will then track it each week over several years sending her grandmother a monthly report on how it is performing. She will hopefully understand the ups and downs of the market and the need to stay in it for the longer term."

Three piggy banks:

"I'm a single dad from Massachusetts and I have one son who just turned 5 years old," Matt Zembruski writes. "Since my son was about 3.5 years old, I have given him an allowance of $3.00 per week.

"To teach him how to understand and manage his money well, I wanted to give him a simple system where he could divide his allowance into three separate piggy banks - one for spending, one for saving, and one for sharing. I found the perfect product from www.learningcents.com. It is a three-way piggy bank built for exactly this purpose.

"So each week my son takes his allowance of three one dollar bills and places $1.00 in each of the piggy banks. Before we go to a store to do some shopping, he will take the available money in his spending piggy bank and put it in his wallet. Then he can buy whatever he wants with that money at the store.

"As the money grows in his saving piggy bank, he takes it out and deposits it in his own bank account at our local bank. To make the process of saving more fun for him, I match the money he puts into his bank savings account dollar for dollar.

"And the money in the share piggy bank is used to donate to worthy causes or in case he wants to buy something for a friend or someone in need. The system works great and my son has become an excellent money manager."

Two jars for saving:

From Texas dad Brian W. Bingham: "For several years now I have had three jars for my son. He is 10 now. One jar is for church, one is long-term savings and one is short-term savings. He keeps his spending money in his room. We have even talked about adding one for taxes.

"This has really 'visually' helped him to realize that if he gets $5, he has to put something in every jar. I started him a savings account his first year of life, and he enjoys adding to that account and watching it grow. He now asks to add to the jars without me having to prompt him, which is what I'm going for.

"This is separate from his college savings account. His long-term savings is now over $4,500, exclusive of his college money. He's very proud of that."

No single method works for every child at every age

Meridith, a mother of two, writes: "Our son does chores because we're a family and he's part of that team (sort of like how I make my bed in the morning even though no one pays me to do so).

"We have a chart posted on the front door, with an extra set of chores and each one has a value assigned to it. He'll empty the little vanity trash cans in the bathrooms for a quarter, he'll dust for another quarter, cleaning out the car is 50 cents... etc. He does extra chores to earn money (like a teen who gets a job).

"He's 8. He does not have an allowance yet. We've tried, but he doesn't have any interest in it. But he DOES enjoy looking at the chart and figuring out how many paid chores he needs to do in order to have enough money for his next Plasma Dragon!

"We've found that he's learning more about money this way than when we were forcing him to sit down and divide his allowance up into the portions he gets to keep and spend, the portion he had to save, and the portion he had to give away. He was bored to tears doing that, and really had no interest in it at all."

Gift cards can teach money management

"For my daughter's birthday she (now 7) usually gets gift cards instead of presents," one mom writes. "It makes her really very happy - she can choose whatever she wants from those stores, but she has to calculate very carefully not to exceed the amount given." This mom also says her daughter helps pay for the family's purchases at the grocery store using the self check-out lane and saves extra change she finds for use at the Dollar Store.

Parents offer matching grants

A California mother of three writes: "The way we promote saving money to our children is by:

  • 1. Each of them has a saving account
  • 2. We match the amount they deposit. (If they deposit $20 - we match it so the total deposit is $40). BUT they must keep it in the bank.
  • 3. Every time their statement comes they are eager to see how much there is in their account, and this makes them want to save as much as they can.

Show how little things add up

"I used to get frustrated when our daughter would ask for a 'treat' like a Jamba Juice orange juice or a Starbucks hot chocolate and I would find the cup still 3/4 full left in my car," writes California mom Bonnie Montgomery. "My husband and I started a new deal - whenever she would ask for a treat we would say, 'OK, it costs x-amount. If you finish it, no problem; if you don't, that's how much you owe us from your piggy bank.' Now, she either (a) finishes the treat or (b) says, "No thanks, I'm really not thirsty after all' No more full cups in the car!"

Shop for bargains together

"I teach my 13-year-old daughter to shop for the lowest price for the same product by looking through the circulars in the Sunday paper," says Carol Taylor. "Also I help her to see how coupons can help her save money. Additionally, we shop together so that I can help her see that she can get the same fashionable 'brand name' look at a lower price."

A financial services professional offers advice

"I am from Washington state. I have been in financial services for almost 20 years.

"I have offered, on several occasions, to go to my local high school and teach the classes on financial services of all types, so that they would have an understanding of simple/compound interest, check book balancing, life insurance and the types of insurance, estate planning, etc. The principal refused to be involved with it, even though I would have provided all materials, generic in nature, and would have contributed my class time.

"I can tell you that in dealing with adults, they have absolutely no idea what is going on. They do no not understand credit, the 'rule of 72,' mutual funds versus stock investing, pre-tax savings versus post tax savings, etc. No clue. I always tried to get my kids to save 50% of whatever money they received as gifts, and they could spend the other 50%. The adults in their lives thought that was terrible of me.

Editor's note: [Here's an explanation of the rule of 72.]

"It is almost impossible to be viable adults any more without financial knowledge in hand that will allow them to become financially independent and to understand the time value of money.

"I believe that kids should be able to begin investing in their own IRAs etc. at the earliest possible age, to take ownership of their financial destiny. They need to learn that money is a tool and like any other tool, it has its uses if properly used. They need to understand stewardship of the financial world."

Theme park teaches kids about money

Ms. L. Bologna of Florida offers an in-depth report of Wannado City: "Here is a way to teach your child about money and they can have fun at the same time. My husband, son and I (my son is almost 5) recently visited Wannado City in Sunrise, Florida. I was very impressed - as you are about to find out.

"It is located in the Sawgrass Mills Mall, which is a short drive west of Fort Lauderdale. They are also building a Wannado City in New Jersey, near the Meadowlands.

"Anyway, this is an indoor amusement park dedicated to teaching kids about money and the economy. It is a children's city the size of three football fields. The children work at jobs to earn "Wongas" (the city's currency) and can also spend Wongas to go on rides or get treats. I'd say children aged 4 to 10 are best suited for this. Some of the jobs are geared to different-aged children by their nature (surgeon likely for an older child...) At some activities a child earns Wongas and at some they spend. For example, if they watch a show at the theater, they pay Wongas. If they act in the show at the theater, they earn Wongas.

"The first thing that happens after you pay admission is each member of your party gets an electronic security bracelet. There are kiosks around the 'city' where you can scan this electronic bracelet and you can see on the screen where the rest of your party is at any given time. They also give each child a check for 150 Wongas. Then you take the kids to the 'bank' and open an account. The child has the option to cash it all, or deposit any portion to their account. They can also get an ATM card to draw out more Wongas later if necessary without having to wait in line. (Just like in real life.) Then you are off. The kids do what they 'Wannado,' hence, the name of the park.

"My son went to the bakery first after seeing the Web site at home days before. He made a cinnamon roll and ate it. (This activity cost Wongas.) Then he started earning. He was an archeologist, an airline pilot, a fireman. (The kids actually get an alarm, ride a truck to the fake fire and put the fire out with real water, and take the truck back. They do put fireman's gear - a raincoat and hat - on the kids before they go), a paleontologist, a gem miner, a nursery doctor at the hospital, and went to the fair to go on some rides (the rides are for smaller kids).

"Other activities included a police department where officers find perpetrators on the street and bring them in, detectives, a hospital as described before (the ER has an ambulance that travels in the city to injured parties and brings in volunteer adult patients.) There is a newspaper, a courtroom with judge and attorneys, a TV studio, a fashion modeling runway, a fair with kiddy rides to spend Wongas, a jewelry store (you pay Wongas and get to make and keep a piece of jewelry made of beads on fishing wire), a grocery store where you can be a shopper or a checkout person, a radio station, a dentist's office where children learn to floss the patient's teeth (the patient is a plastic dummy like the kind they use for CPR classes in the real world), a circus, an acting theater. The kids have a blast.

"Keep in mind that these activities are for kids only and they are supervised, but no parents are allowed when the children are 'working.' Some venues allow parents to watch through a window from outside, but not all or not always for the whole activity. So, if your child is young and may be afraid to leave you, this may not be the best place to go - yet.

"We waited for our son at the exit of each activity (he was fine going in alone) because he's younger and needed guidance on what to do next, but if your kids are older, there is a lounge upstairs with free Internet and television. The drinks there were a bit pricey, but they have a captive audience (real money needed here). You may not leave the building without your child. (If you smoke, one adult party member must remain while the any others leave the building.)

"They also had a food court where we had lunch with a Johnny Rockets, a deli and a pizza stand (again, real money needed). The prices were a bit better than I expected in this food court area.

"When you are ready to leave, you can deposit your Wongas back into the bank (where they will earn interest good during your next visit) or take them with you for a souvenir.

"We were there most of the day arriving at about 10 a.m. and leaving at about 7 p.m. Each activity takes about 20 minutes, and the kids have to wait in line sometimes to do an activity. We went on a school day, so it was not that crowded. I've heard that on weekends and during school vacations, though, it can be packed, so your child may not be able to do as many activities as mine did. Also, not all activities are available at all times, so make sure you heed the schedule if your child really wants to do something specifically. For example, I believe that the airplane was only open from 2 p.m. to 4 p.m. on the day I went. So, if your child really wants to be a pilot, make sure you get there during the times that activity is available.

"At age 4, I'm not sure he really got the economy idea, but he still had a great time and we will be going back - probably more than once. As he grows and we return, I'm sure that he'll grasp the more advanced concepts.

"If you decide to go, I suggest visiting their Web site because they advertise specials for admission. We live only a two-hour drive away from this area and are looking forward to going back for another visit soon. If you don't live nearby but find yourself in Southeastern Florida, especially the Fort Lauderdale area, and you have kids aged 4-10, I strongly suggest you check it out.

"Oh, by the way, parents were free (except for a $2 security fee) when I went and I paid full admission price only for our son. I'm not sure if this is the case all the time. I am also not sure of the details, but I don't think you have to pay for toddlers or infants either. There were a couple of play areas for the toddlers, but they are not worth paying full admission for, so check this out too before you go."