Teaching Mini About Finances

Macy M7 comments5080 views

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I feel like there is a big gaping hole in our education system when it comes to teaching about finances and money management. Whenever I feel that way I feel it is the parents role to step in and educate their kiddos on the aspects that aren’t being covered well enough to their liking. This may seem WAY premature in some people’s eyes but so much of life focuses around the tools you can use, money is one of the bigger tools. It’s important that from early on kids can be exposed to it and can start to make mistakes and understand progress in order to gain the respect needed for money (and I don’t want any whiny kids at the grocery store begging for candy!). Unfortunately I think this lack of understanding is an issue that has gone on for a couple of generations and that a lot of parents don’t know enough to be able to pass that on and teach it to their own kids how to properly manage money. I feel very fortunate to have parents who taught me this from early on and I intend to do the same for MiniM.  A large portion of my whole tiny house project is based on a respect for money and a desire to live well within my means.

My upbringing:

The moment we were born our grandmothers gift to us was a saving account.  She opened it with $5.00 and then it was ours.  From that moment on we were never given an allowance, we had to earn our money.  We had age appropriate chores to do just because we were contributing members of the family.  If we wanted money we had to go above and beyond.  My go-to move was to clean cupboards, every cupboard was worth a buck.   We had to ask permission first and then we could work to our hearts content.  When we were paid my parents were very diligent in sticking to the deal that 1/2 of everything we made went straight into the bank into our college account, the other half we could spend on whatever we wanted.  I knew as I worked I was really working for $.50 a cupboard, so when I made my budget I could do so appropriately.  By the time I was 12 I had $1,200 in the bank, that I had earned and all the toys and candy that I wanted.  And it felt good, I remember feeling proud and financially savvy.  My mom would take us down to the bank pretty regularly, anytime we needed to make a deposit, we had to fill out the little slips and deposit our money (I was a very shy kid, this could have been to work on my people skills just as much as it was about learning financials).   I remember we made regular trips, sometimes I had only a couple bucks to deposit but to me it felt like a lot.  It was important that my mom took us down there for only a couple bucks, it made it feel special and I felt accomplished to see the account balance grow, 5 dollars is a lot to  6 year old.  It would be too easy to lose track of if I had to wait until I had $50 or $100 bucks.

Around 12 years old I started learning about various mutual funds, and Certificates of Deposits (CDs) and started investing a little, by the time I was 15 I had stocks in the stock market which I researched and invested in.  Sometimes I lost money, sometimes I did really well (I bought one at .15 cents and sold it at $26.00 a share, though it ended up going to $86.00 a share before it split, I did really well but I could have done REALLY well if I hung on a little longer :)), overall it was definitely a fruitful experience.   Much of my college was paid for by these funds (and unfortunately much of my ex husbands debts as well… but that is another story… turns out I am financially savvy but haven’t always had the best picker when it comes to life partners!  (Happy to say I am much better at that now too!)

Anyway, this is a post about how James and I are going to teach MiniM, not about how I was taught.  Even though my parents did an excellent job, James and I talked about it and have a plan that will be a slight variation.

How Mini will be raised:

When thinking about this there are a lot of options that we came up with on how to teach savings:

  • Parents setting up (contributing or not) a savings account to pay for college expenses: We feel that unless the kiddo can actually engage with the process from early on and watch things build there is little ‘teaching’ aspect to this.  I also don’t want to contribute to this particular account just incase she decides to do something stupid like cash it all out to buy that awesome arm sleeve tattoo she’s ‘always wanted’.  I want this to be HER money so that I am not literally or emotionally invested in her blowing it (because blowing money IS an important learning experience, I have blown plenty of it to know! She needs to blow her own money if hes going to blow money :))
  • 529 Savings account:  This has been brought up a few times and is a great hands off option, it allows you to contribute tax free funds to a college savings account.  The reasons we decided against this though is that there is very limited control over what you can actually do with the money sitting in the account, it is just a passive account that others invest that you don’t touch for 18 years.  Second, if she decides not to go to college (or if she decides to continue on with a non-approved education path) and instead do something else with her life then all of the money is taxed and then charged a fee.  Third, it is once again very hands off, she wouldn’t know much about it until one day she gets a lump sum of money to spend… I find it is harder to appreciate if you didn’t actually work hard for the funds, and so easier to spend!
  • Allowances and a piggy bank:  This is a great starter but there is only so much you can fit in a piggy bank (and it’s an important lesson to keep your money safe, I remember having my piggy bank stolen, total heartbreak loosing my hard earned cash! A piggy bank is a great in between step to a bank account).  I also happen to think allowances are in generally poor practice.  In life you never get money for just being.  There are certain roles that happen in family structures and I believe chores are just a part of the natural order, I don’t get paid for doing laundry etc., she will have her own chores too but will be given opportunities (much like I was) to earn extra.
  • Matching funds: I like this because it helps to incentivise savings but also is an unrealistic model compared to real life (unless it’s a shady used car lot and you have a tax refund!).  Not only that but that means when she DOES blow it on some ‘bad-ass’ ink I am not disgruntled because in reality that WAS half my money…
  • Creating a budget for them and stick to it:  This is good to do but I think is lost without actual real life practice, and it just sounds boring, not simple with easily achievable paybacks…
  • Playing board games that teach about finances: Also, sounds terribly boring!  I’d rather play FUN board games with her!
  • Teaching about compound interest: This is the ONE thing school does teach, without some basics though, this is worthless…
  • and plenty of other versions which seemed to get more convoluted and less simple (aka easy to grasp and understand)

The point historically has been to have a college savings fund, but what if college isn’t what you are pushing?  I know lots of people that went to college and all it got them was in debt… What if, like her dad, she wants to start a business at a young age and self educates to be able to do that successfully without the expense of college?  Personally, I think that could be great!  If all this savings were to get taxed and then fined strictly as in the 529 option above because she doesn’t choose college, that would be a shame.  With the rising costs of college tuition (mine literally doubled EVERY year) and the payback on investment, college, in my personal opinion MAY not be the best option always.  Of course if there is no other direction I think it is definitely worth starting some college classes and seeing where that goes.  There are PLENTY of other great directions though, music, art, various levels of entrepreneurs, there is a whole world of internet opportunities that may or may not require college, MAYBE she will want to build her own tiny house ;-).  Times are always a changing and opportunities abound!

Our solution is setting up an ‘Opportunity Account’.  This is an account that is completely hers to be used to teach about finances and completely belongs to her use as she wants (with parental permission) when she turns 18 (I SO hope she doesn’t choose to blow it on a tattoo!).  She will be given opportunities like I was to earn extra but half of that will go straight to her opportunity account.  The goal being that when she gets to 18 she will understand the value of a dollar, she will have a good foothold on how to invest and she will be a step ahead to where she wants to go in life.  By that point, if we’ve done our job she will know the difference between an asset and a liability and be able to react accordingly.

With this sort of a set up it also allows me to tie her account to a PayPal account and I can send out a link for friends and family to contribute to her opportunity account for holidays and birthdays instead of getting ‘stuff’ if they are at a loss as to what to get but want to do something…(like, see what I did there…that is a real button by the way, her account is already set up and has some contributions made from those celebrating her birth!).  I know ‘stuff’ is pretty fun but she’s got a big family and stuff may not always be preferred… it gives another option for them which I think she will appreciate later in life.

 

So in short, Mini will have to contribute to the family but will be given the opportunity to do extra chores for extra money (and eventually get a ‘real’ job), half of which will go straight to her opportunity account, half of which she gets to spend till her hearts content!  With that account we will help her research investment opportunities to put her money into to make her money work for her until she is 18, at which point she MAY decide to cash it out and do this:

Blown MoneyAt that point we won’t feel the need to say anything about wasted money because she will have learned how to use money as a tool and she clearly has bigger issues!

 

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7 Comments

  1. I heard some interesting tips about kids and money. All just ideas, for your consideration.

    First one was a 401Kar basically every dollar they save for a car you’ll match it to a point. This encourages saving up for a big purchase (compared to credit) and you can stipulate that its only for a car. Also might help be a safer driver because of them having to save up.

    Next was college reimbursement. Basically the kid has to save up for the first semester of college. They pay for it in full. At the end of the semester, they bring you the report card to you and if its above say a 3.0 then you reimburse them for the previous semester’s costs. After they graduate with a 3.0 or better they get reimbursed again as normal and now they have some seed money while they find that first job, first apartment, etc.

    The only thing I could think of is talking to them about credit cards. College kids are targeted for cards because they often don’t know how to use them. Cards also abstract the money you’re spending. Some way of tying a real world spending to the use of a card, explaining how they must be paid in full.

    When I got my first card at 16, My father always told me that you always pay at the end of the month and had me sit there next to him as he showed how he took the money out of my account and paid the card off. Made it real. He also showed me the break down of spending with his software (quicken maybe) so I could see I spent $X on eating out, or clothes, or whatever. It helped shape spending habits.

  2. Let me first tell you that no matter how hard you try a two-year old will whine about something at the most inopportune time and it will be centered around something (maybe not candy) that you felt you had sufficiently instilled in them as a life lesson. Lately our daughter has been persistent about beach toys EVERYWHERE we go. She has one set that she has had for over a year and she loves them. But for whatever reason she insists she must have EVERY beach set and she is willing to (warning: southern saying ahead) show her tail to get it! Anyway. I digress…..

    We are doing a combo. I immediately threw out the 529 in the beginning because I was both against the notion of non-college penalties and the gov’t being able to use my money to back their own federal loans and because I was tired of getting those letters from Gerber telling me about their savings plan. UGH! I also don’t care anymore for CDs or mutuals as – like you – I was raised understanding them and I am just beside myself with the lack of a visible interest rate or return on principal these days. UGH! Allowances? What? My momma never gave me a quarter for setting the table. My reward was getting to eat with a fork and knife that night. That was my “allowance.” I agree with you on natural order and I think most of what society calls chores today is truly just being a contributing member of a village/group/society/family. Our children don’t need to be paid to learn or to participate or to help. UGH!

    For TM’s birth we set up a PayPal account and asked that in lieu of gifts people donate to the PayPal. We raised just over $300. We then made a donation to our local community center and adult learning program in her name. Even though she had no idea of it we felt that was a solid foundation for her (to look back on) in understanding that money is so much more than just a new pair of pants or a new this or that. Properly managed she could help change the world! Since then (and I am pleased to say my siblings have joined us as has both our sets of parents in this endeavor) we have committed to giving commodities as gifts. No more of the latest toy or the latest tween fashion. For gifting holidays we give silver coins. TM gets a silver coin (1oz. silver round) for birthday, Christmas, and start of summer (we randomly made this a holiday because her birthday is September and Christmas is December so we wanted to….well, because we did!) Both sets of her grandparents do this for her as well (just birthday and Christmas though) and now her aunts and uncle on my side do this as well. At almost 3 years old she has quite a savings of coinage. The cool thing is that we can also teach her about market fluctuation as what may cost $21.34 today may reach $54.16 in just a week or two. The coins are also something that are less likely to be spent randomly. I mean who takes a silver coin to Starbucks when they are jonesin’ a frappucino?

    Lastly, we also save everything but quarters (hey, tiny house folk have to do laundry and quarters talk at the laundromat!) for her piggy bank. It was given to her by an aunt so we use it. Once the piggy is about full we cash it out and buy her a silver coin.

    So far the system is working great and we feel comfortable in our choice. I am so happy to hear of another set of parents who are really thinking about this now instead of when their child is 13 and spending every dollar that passes through their hands.

  3. one thing that martha and i do is set our grand kids down each month to pay all the bills. now that may sound basic, but their parents didn’t. kids do better if they know where all the money goes. are they still going to act out? sure, but it is a lot milder now. i like youth bank accounts.

    raz

  4. “In life you never get money for just being.”
    In New Zealand we have a great system where actually, you do get money for just being, so that completely changes the way I think about pocket money.
    ‘Chores’ are something you have to do for a household to function properly, so they are never paid for those, but if there is something I would pay someone else to do, like cleaning windows, mowing the lawn, or washing the car, that job is up for grabs if they want extra money and I will pay them the same (say a carwash is $5, I will pay $5 to wash it by hand).
    I give my kids $1 per year of age per week, so my 4 year old gets $4 a week. Of that, 10% comes straight back to me as tax (because everyone has to pay tax, even those on benefits), 10% is put aside for charity (when they had saved up a decent chunk of money they went grocery shopping and donated the food to the food bank), 10% is put aside for retirement, 10% for long term savings (house, car, university), and 10% for short term savings (which right now is ‘more lego’). The remaining 50% can be spent on whatever they want so there have been patches where they bought sweets or crappy $ store toys, but mostly it is saved for buying lego, clothes, toys and gifts. I don’t mind them wasting all their money on crap right now while all their money is $10, but in the future, if they wasted all their money on crap, it could be thousands of dollars. I want them to learn their lessons now while it isn’t so costly, I dont want them making the same mistakes as me..
    I have been paying this money since birth, so by the time they got to an age where they understood money they had a bit of money saved up and could have a bit of a splurge. When there is $20 saved for retirement or long term, I purchase bonus bonds for them, when they’re older and have more money in those accounts, we will talk about investing it.

    When my kids have a job, while they’re still living at home, they will be required to put 10% of their pay aside for retirement, and 10% for long term savings, and I hope the saving will continue when they leave home.

    My teaching on money is influenced by the fact that I live in NZ with a good social welfare system and also the fact that the money education I got from my parents was terrible (nothing about savings, but heaps of “debt is awesome” stuff, *sigh*)

    1. Interesting, so if I move to NZ I would get money for free? Where does that come from? Is it ultimately the taxes you paid? I don’t get it…

      1. the usa could do the same but we have wars to fight and corporations to support. a bit over 50 % of our budget goes to war. we like war best. i’m 69 and as far back as i can remember it has always been this way. google “peace dividend” for laughs. the kiwis travel to beat of a different drummer. this is bipartisan.

        i didn’t do this to piss you off. figure out where your taxes are going. i actually would write about other things. but is what it is.

        peaceup raz

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