Want to get your kids started managing money? I’ve broken the process down over five days, and by the end of day 5, they should be well on their way!
Day 1 – Get started
Let’s get started. Grab two index cards and a pen.
Think about why you want your kids to learn to manage money. What do you want for them? What does success look like? Write down five thoughts on the first card and keep them handy. Knowing where you want to go will help you get there.
Talk to your kids.Tell them that you’d like them to learn to manage money and why. Ask what questions they have and jot those down on the second card. Answer their questions if you can, but don’t be afraid to say you don’t know if you’re not sure. Let them know that you’ll get back to them once you find out and be sure to follow up.
Keep these index cards close so you can refer to them often, and don’t be afraid to modify them over time.
(I actually have a few index cards if you want to check them out!)
Great work today on getting started!
Day 2 – What kind of buckets?
Today you’ll decide how to separate the money.
At the very minimum, I recommend having a bucket for saving and a separate one for spending. Some people also have a bucket for giving.
Keep it simple to start. Once you’re using the buckets you decided on and get into a good flow, you can add additional buckets for:
- Short-term goals (like a big toy or Christmas)
- Long-term goals (like a car or college)
- An emergency fund (yes, even kids can have an emergency fund)
- An investment fund (yes, kids can buy stock, too!)
- A Roth IRA (for teens earning W2 income)
Now I don’t mean actual buckets, rather categories or accounts. When you put all of your money in one place, it’s hard to determine what it’s for. Separating your money into separate buckets, categories or accounts will make it easier to see what’s what.
Talk to your kids and get their feedback. Decide as a family what buckets you’ll create.
Day 3 – Cash or card?
Yesterday you decided how to separate your money. Today let’s talk about the money itself.
Do you want to teach your kids about money using cash or a card? Let’s talk about the pros and cons of each.
Cash
Pros: Cash is easy to understand because kids can hold it in their hands. Most people agree that you spend less with cash and you can’t overdraw cash (both of which are good for teaching budgeting).
Cons: As a parent, you have to have enough cash handy to pass out if you’re paying an allowance or paying for chores. Kids also need a container, envelope or wallet for cash (and coins).
Pre-paid card(s)
Pros: You can’t overdraw the card (which again, is good for teaching budgeting). They’re a good option for younger kids who may not be eligible for their own checking account. And some kid-friendly pre-paid cards have a lot of great additional features and ideas for teaching kids about money.
Cons: Pre-paid cards aren’t free – there are fees associated with them. There can be a learning curve, and it can also take time to add money to them.
Debit card with checking account + separate savings account
Pros: Most people keep their money at the bank, so your kids will definitely need to learn how to bank at some point. With a checking account, you won’t have to worry about cash (or coins), your kids will get valuable experience with a card and they can deposit those checks from grandma themselves.
Cons: You can open savings accounts for kids (UTMA) but it’s more difficult with checking accounts. Some credit unions offer accounts starting at age 12, but check with your bank to see how old your child has to be to have their own checking account.
Credit card
I think it’s important to teach your children how to use a credit card. When it’s time, add them as an authorized user on your account or get them a secured card. However, for now, I recommend one of the options above (namely because you’ll need some way to pay the credit card bill).
If you’re not sure, start with cash. When you’re ready, move to a pre-paid or debit card and then later a credit card.
Remember, you don’t have to stick with your choice forever. Change if you find your original choice is no longer working or you’re ready to move on. (We switched from cash to a pre-paid card after two years.)
Talk to your kids. Explain the different options to them and see if they have any preferences. They may LOVE cash (who doesn’t) or be totally fascinated by cards and want to start there. There’s no right or wrong answer – just what fits for your family.
Now, secure your vessels or open your accounts.
- If you decide to go with cash, think about where you’ll put it. Some people use jars (check out Pinterest). We used clear plastic envelopes. And you can totally use an actual wallet.
- If you’re going the pre-paid route, decide where. Here’s a great roundup from Well Kept Wallet. Then make your purchase.
- If you’re going to open accounts, decide where. I recommend either a local credit union or where you currently bank (if you’re happy there). The accounts should be free to set up, have no fees and no minimum balances. Then gather up your kids and go open the accounts.
Day 4 – Where will the money come from?
Great work so far! You’ve decided how to separate your money and got the ball rolling with the containers, envelopes or accounts.
Now let’s talk about where the money is coming from.
Think about your role in your child’s financial education.
- Does it involve teaching them and giving them money?
- Will you give an opening contribution to any of the buckets you decided on?
- Will you pay an allowance? How much? When? Is it conditional (based on chores or school performance) or unconditional?
- Will you have a paid chore list?
- Will you encourage your kids to seek out jobs in the neighborhood and for family?
- What about birthday and gift money?
- Will you match funds deposited to savings or giving?
- Will you pay interest? I’m a BIG fan of paying kids interest. Learning early that money can make money without you having to do anything at all is a great lesson for kids. Read more about the rule of 72 and how I reward savings.
- Will you have any household rules for incoming money? Do the kids get to decide where the money goes or do you have a say? (In our household, at least 10% of all incoming money goes to savings – every time.)
Talk to your kids. Get their thoughts on allowances, birthday money, chores, odd jobs and any other ideas they have.
Then, take action. Fund those accounts, create the chore lists or hang tight until they bring the money in.
Day 5 – Keeping track
It’s here! Those 5 days went fast, didn’t they?
You’ve done a great job – you thought about why you wanted to teach your kids about money, you decided which buckets are important to your family, you set up some containers or accounts and you talked about where the money will come from. Maybe you even pitched in to get your child started. Take a second to congratulate yourself!
There’s just one last thing I want to talk about – keeping track of what’s in those accounts.
It’s important to teach your kids to balance their accounts so that they know how much is in the account before they go to spend any money. It’s also great for knowing how close they are to a goal, helps with problem solving (banks and merchants do make mistakes) and to prevent identity theft and is great math practice.
There are a few places you can find a register:
- If you opened a checking account on day 3, one may come with your account
- Download and print the register we use
- If your child is computer-savvy, set them up with an Excel spreadsheet or Google sheet
- The Balance also has a list of where to find free check registers (and how to use them)
We use a two-line approach. One line has the transaction and the next line has the new total, but feel free to use whatever approach makes the most sense to your child.
Talk to your kids. Secure a register for each account they have and teach them how to use it.
Day 6 and beyond – How’s it going?
Now is the “boring” part – practice practice practice! Each time your kids encounter money is an opportunity to put your plan to work and have additional conversations.
One issue some parents run into is that they’re nervous about talking to their kids about money. Maybe they feel like they don’t know everything or they’re not the best examples.
But let me tell you that kids want to talk about money. If they don’t hear from you, they’ll hear from someone else.
Plus, like any other part of parenting, it’s all about doing the best you can. Keep at it.
And never stop learning! Here are my favorite financial resources:
And of course, follow along with our adventures learning about money at the National Bank of Mom.
