A few days ago I shared the Three Steps to Teach Kids the Value of Money and the 10/10/10/70 plan that I’ve been using with our kids as they’ve grown up. It has been a really fantastic strategy to teach them the value of money. However, when I told you that I used the 10/10/10/70 plan, it wasn’t entirely true.
I started with that plan, but as the kids grew it evolved. Here are the details of how I used the four buckets of the plan (save, invest, donate and spend) to teach my kids what to do with their money.
Saving and Investing
As you may recall, under the 10/10/10/70 plan, each week my kids would put 10% of their allowance in their container that they created labeled “save” and 10% of their allowance in their container that they labeled “invest”. This worked out great for several years.
Once they had saved up $10 in their containers, I decided it was time to open up their own savings accounts. So, we combined the funds from their save and invest containers and opened up a kid’s savings account at CapitalOne360, where I have my own checking and savings accounts.
The kid’s accounts are really cool because there are no fees, no minimum balances and they earn a little interest. They are also controlled directly from the associated adult account (mine), so they are easy to manage.
Every month, I would bring the kids to the computer and we would see how much interest they had made. These monthly meetings sparked great questions and conversations. They were amazed to see the “free” money coming into their account each month.
A Side Note on Investing
Once they had their online savings accounts set up, they were anxious to start investing. I started thinking about the best way to get them started investing but ran into a problem. The account balances were so low, that they would be absolutely decimated by broker transaction fees. I wasn’t sure what to do.
Finally, a promotion came along through the bank to open a brokerage account and get free trade. So, I opened an account for each child and bought one share of the Vanguard S&P 500 Index with no transaction fees. Done.
Soon I started to panic. What if the market crashed and they lost 25% of their money? Would they be crushed? Would they be mad? Would I scar them for life? Also, it would be another year or so before they would be able to save up enough to buy another share and unless there was another promotion, the transaction cost would be brutal.
Ultimately, I decided to leave the money in the market until they made a profit and then take it out. It was about six months or so and then I sold the shares for a profit and transferred the money back into their savings accounts. I was glad to have gotten out without a loss.
By this time in the process, they were used to saving every month, getting interested every month, and seeing their balances go up every month. If I had gotten them into a loss situation on the stock market, I don’t think they would have ever forgiven me!
At this point, I officially changed my strategy. I went from a 10/10/10/70 plan to a 20/10/70 plan. I increased the “save” portion to 20% and dropped the “invest” portion entirely. It was too risky.
Now, having had a few months of investing was still useful. Again, it sparked great conversations and questions, but it was just too risky for us. Now that they are older, we have continued to stay away from investing because they will need the money for college in a few years and we can’t afford to have it crash between now and then.
Now that my daughter is 16, I decided to get her a checking account. Well, not a checking account exactly, but a teen checking account through CapitalOne360 which doesn’t actually have any checks, but it has a debit card. Similar to her kid’s account, it is set up specifically for teens. It has no fees or minimums and includes a free debit card and free ATM access through the AllPoint network. It is also linked with her kid’s savings account.
What precipitated the new account? It actually started when she bought a monthly Spotify Premium subscription. She needed a credit card number to charge the expense each month and she was using mine. She was going to pay me back each month, but that was kind of a hassle for me to keep track of, so I decided to get her a debit card.
So far, the new teen checking account has been great and she can start learning how to handle a debit card without going nuts. She’ll be out of the house and going to college soon, so it seems like a good time to learn.
The key to teaching kids the value of donating is in making it tangible. Giving $10 to a charity doesn’t really mean much to a child. They need to be able to see how they are helping, which is why we created a “donate” tradition which we still follow each year around the holidays.
Every December the kids pull out their “donate” money and count up how much they have. Then, we look through the WorldVision catalog to see what they might be interested in donating to a needy family.
WorldVision is a charity that lets you pick specific items or animals to donate to needy families around the world, which makes it really great to use with kids. The catalog has great pictures and descriptions inside so that the kids can actually see and pick what they would like to donate. For example, you can donate a goat for $75 or two chickens for $25.
Lately, my son, who is an avid soccer player, has been donating soccer balls to children in under-developed countries. In the past, we have donated fishing gear and one year we donated chickens so that a needy family could have a continuous supply of eggs. These are all very tangible things that our kids could understand.
They still look forward, each year, to using their money to buy these things for other kids/families. WorldVision has the option of printing an e-card after you make a donation…our kids have proudly displayed them on the bulletin boards in their bedrooms.
Seeing that daily is a nice reminder to them of how good it feels to help others, as well as a reminder of how fortunate they really are. I go with their ideas on where the money should be donated and use my own money to double their donation. Over the years, we have donated hundreds of dollars.
Donating may not be something that your family is into, but for us it’s an important part of money management and something we wanted to instill in our children.
Now it’s time to talk about spending. This is the money that your kids can spend on whatever they like (within reason). The hard part for parents is that every now and then, you need to let them buy something that you think will be a waste of money.
One of two things will happen. Either you will be proved wrong and they will enjoy the heck out of their purchase or, more likely, they’ll regret their purchase almost immediately after making it. These lessons are priceless and at this point, they are also cheap.
A few years ago, my daughter bought herself a ticket to go with friends to a One Direction concert for about $100. I wasn’t sure whether it was a good value for her or not. Turns out it was not. She ended up regretting her decision almost immediately after the concert was over because, although she had fun, she said it wasn’t actually worth the $100 that she no longer had to spend on other things. Not surprisingly, she has not purchased another concert ticket since.
A year later, my son bought himself a Chromebook for school for about $150. Again, I had no idea whether this would be a good buy for him. What happened? He loves his Chromebook and uses it every single day. When he’s not using it for homework, he uses it to watch Netflix.
Both good lessons regarding how to spend your money and evaluate what you are getting for it.
So, what have I learned about teaching kids what to do with their money?
Here’s a summary:
- Start teaching them early
- Get them excited about seeing their savings balances grow
- Don’t worry about investing – at least not yet
- Let them make mistakes when the stakes are low
- Take advantage of all of the great conversations that will be sparked
What lessons did you learn as a kid about what to do with your money? What lessons have you taught your own kids?