Teaching children how to live within a budget is essential. And it is the necessary first step in teaching them, perhaps just as importantly, how to save and donate money.
In my last column, I described some of the ways I teach my kids how to manage money: I give them an allowance and require them to purchase any incidental or impulse items they want. When they are in middle school, I show my kids my bank account statements so they can see how money comes in and goes out, and how that guides my spending.
Finally, I set up each with a checking account and debit card to complement their long-standing savings account at age 16. Having to use their own money gives children the opportunity to learn how to manage finances while the stakes are still low.
Each of my children has, usually in the first year of receiving an allowance, spent their money foolishly at least once. Within days, if not hours, after the purchase, they experience their first case of buyer’s remorse. It’s an invaluable lesson.
Sometimes my boys found themselves without their wallets when wanting to make a purchase. On such occasions, I fronted the money with the understanding that they must pay me back when we return home. This worked well with two of my older boys and does today with Leif, who just turned 10.
But repeatedly, my most impulsive child, Hugo, became angry when I attempted to collect his loan. This raises an important point about parenting: It is not unfair to have different rules for different children. The Bank of Mom quickly rejected all loan applications from Hugo for the better part of 10 years. Thereafter, he became a model borrower.
Another concept I’ve loosely taught my children is the “three 10s,” that is, put 10% of your income into retirement accounts, 10% into savings accounts and give 10% to charities.
I say loosely because few 10-year-olds are interested in retirement savings. But remember, information is power. Nobody can do something they don’t know about. Talking with children about retirement savings long before they need it makes the subject less abstract and, hopefully, lays the foundation for them to begin saving that 10% as adults.
Claude and Jules have both worked for employers that automatically deducted and directed a portion of their income into retirement accounts. Hugo, who will graduate from college this spring, opened a Roth IRA last year. His contributions to his IRA are very small, but he makes one each month.
All my children receive their first savings accounts soon after birth. Thereafter, I deposit all birthday and holiday money they receive into these accounts. By the time they begin earning allowance, each child already has a few hundred dollars in the bank.
After Jules lost his wallet containing more than $50 when he was 8, I stopped paying the boys’ allowances in cash. Instead, I transferred the money online from my checking account to their savings accounts. While protecting the boys from carrying too much money, this also made it simple for me to verify how much I owed them. For it’s easy to forget to pay allowance and hard to remember the last time you did.
I give slightly more than 10% of my income each year to charities, most through recurring monthly donations taken from a dedicated credit card. Occasionally I make one-time gifts to other charities, particularly if asked by someone I know.
Charitable giving is best done as an act of self-determination. Forcing kids to donate their money can create resentment, which makes the lesson of giving backfire. At the end of most years, when the bounty of our lives is readily apparent, I share with my children radio programs or articles on philanthropy (which are easy to find in December).
I do, however, make my children donate their time. They never resist and I suspect it’s because we volunteer together and I don’t pose it as optional. “Today we are going to work at Crown Point farm,” I’ll say, or, “This Saturday, we are working on a project at the school.” Volunteering for something you care about can be fulfilling, with no downside to starting young.
Have the lessons you’ve tried to teach your children taken root in their behavior? It’s impossible to tell when they are with you. The answer lies in what kids do when away from their parents. Nothing makes me happier than having another adult tell me my young children were polite or helpful while in that person’s care.
As adults, my big boys continue to work for groups and causes on their own. Claude spent months organizing for the 2018 election and helps coach middle school distance runners. Jules has been canvassing for a candidate in Columbus where he’s attending Ohio State University. And then there’s Hugo. He has been a mega volunteer for multiple programs in college.
All the big boys are now headed into helping careers in public policy, nonprofit management, education and the environment. They’ve each told me that making a difference is not just important — for them it’s essential to finding career satisfaction. It’s not likely they’ll make as much money as their friends in finance or engineering, but they’ll make enough. More importantly, they’ll enjoy the riches of lives well spent.
Whoopsie Piggle 