In our own personal household budget, every dollar has a name before the month begins. We don’t look back over receipts and accounts to figure out where our money went. Instead, we have a plan and we stick to it. We put a certain amount of cash from each paycheck into envelopes for all of our discretionary spending, and we put a small amount onto our debit card each month to catch the crazy stuff we could not have anticipated at the beginning of the month. In fact, we call it our “crazy” account. Any dollar that comes into our house goes straight to a predetermined specific place. When it’s gone, it’s gone.
If we got an unexpected windfall of money, no matter the amount, I can tell you without question where it would go. We would put it toward our current Financial Peace baby step. For us right now, it’s baby steps #4 (15% toward retirement), #5 (kid’s college) and #6 (paying down our mortgage). I know… we’re weird. But normal is broke, so we don’t want to be normal! (But, in all fairness, if we suddenly got a large unexpected windfall we might rearrange some choices and priorities to make room for some of the things that just haven’t been in the budget up until this point.) We have a plan and we do our best to stick with it, but we aren’t so rigid with it that we can’t make exceptions.
Let me give you the quick overview of what we do with our money:
We give some, we save some and we spend some.
It’s already awkward sharing our money principles with the world wide web, so I won’t go in to specifics about how much we spend, save and give, but I will give you this:
We spend more than we save and we save more than we give.
If you want to know more of the nitty gritty, take Financial Peace University or read Total Money Makeover. We follow many of those principles but we put our own little spin on a few things that we’ve found work best for our family. Of course, if you are local, we’re always happy to delve into the details a little more for people who are looking for some specific money advice. We are very passionate about helping people win with money because we’ve seen firsthand what a difference it makes in our own lives.
The people that we are most passionate about helping are our kids. The biggest and most lasting impact we will have on anyone is our children. As I mentioned in my article 10 Tips For Raising Hard Working Kids, my husband and I believe that what we teach our kids about work and money will have a bigger impact on their future than almost anything else outside of choosing to trust Jesus and choosing who they are going to marry.
It is important than that we not only teach them how to work hard, but also, how to spend well. After all, they can make a great deal of money by working hard, but if they are a fool in how they spend it, they are likely worse off then someone who makes very little money, but spends it well.
What does it look like to teach kids to spend well?
Here are some of our favorite family tips and tricks:
1.) Help your kids create a plan: Since our kids got their first job charts at age 6, they’ve been getting paid a quarter per job. We pay them once a week or so and 10% goes in their giving envelope, 40% in their car fund and 50% in their spend envelope. They can spend their spend money *almost* any way they want, but the kicker is that they must have a plan. There is a spot on their job chart for them to write what they are planning to spend their money on.
(This picture is of Leeann making her first purchase using her own money. She worked hard to buy her very own Nintendo DSi!)
2.) Help them stick to their plan: We don’t let our kids walk around with money in their pockets looking for a place to spend it. We are trying to help our kids make decisions based on logic instead of feeling. It feels good to get that pretty thing that spins and shines because it’s right in front of their face and they are a human being that craves instant gratification—but making a habit of seeking instant gratification will leave them in a perpetual state of being broke. I don’t expect my children to make anything other than childish decisions (like seeking instant gratification) without adult help, so we “help” them by making them stick to their plan.
3.) Let them be flexible with their plan: “Wait, I thought you just told me to help them stick to their plan?” I did. But really, there will be times where something comes up (recently for us, it was a Book Fair at school), or your kids find something else they’ve also wanted on sale at a really great price. When these things come up, a change in plans must be parent approved. They have to be able to give us a logical reason for why they want to change their plan. But as long as it’s a reasonable, logical request—we’re happy to grant it.
4.) Allow them to make mistakes: This one’s hard for me. So often I want to stop my kids from making foolish purchases. I know full well that they are just about to spend their hard-earned money on something that’s going to end up in a pile of plastic pieces under their bed in 3 days or less. Guaranteed. But most of the time, I *cringe* let them make those purchases anyway. Why? Because it’s a cheap lesson to learn. I would rather let them make small mistakes with small amounts of money now then watch them make big mistakes with large amounts of money down the road.
4.a.) Steer clear of worthless things: I do try really hard, and yes, usually even forbid my kids from spending money on arcade games, quarter candy machines and cheap kiddy rides at the mall. I know it flies in the face of #4, but a mom’s gotta draw the line somewhere!
5.) Talk to your kids about their mistakes: I talk with my kids before they make purchases that I think are going to be foolish and try to help them see the folly in what they are about to do. Then, if they are determined, I let them make foolish purchase in spite of my warnings (see #4). Usually, I end up getting an opportunity to talk with them at a later point and help them connect the dots between my warnings and what actually ended up happening. It’s scary to be right so often *mwahahahah*! Teaching kids how to spend well requires a lot of… well… teaching.
6.) Don’t EVER let them go into debt: We are extremely passionate about raising our kids to understand the foolishness of debt. It is our sincerest hope that they will take all of these lessons we are trying so hard to teach them while they are young—and use them to become money-smart adults who are wise, hard working, generous members of society. It’s much harder to be those things when you are saddled with debt. We want our kids to always know the financial freedom that comes along with being debt-free. In order to solidify this lesson we have established a policy where won’t purchase something for our kids and let them “work it off”. They either have the money for it or they don’t. We also don’t lend money to our kids and we don’t allow them to borrow money from each other either. The only exception to this is if I know they have the money to cover their purchase in their spend envelope at home when we find ourselves in one of those “flexible” moments (see #3).
7.) Help your kids find good deals: Your kids will need help navigating this big wide world of coupons, sales-cycles, comparison shopping and on-line purchases. Kids learn by example, but not just by watching you do it; bring them alongside of you and let them help in this process. If they can’t do something themselves (like cut coupons or do an on-line search) then make sure you dialogue with them about what you are doing and how much you are helping them save by taking these extra steps.
(We helped Leeann find a screaming deal on her DSi by combining a coupon with a limited time store sale. This was a huge moment for her because she met her goal far sooner than she would have imagined!)
8.) Define what spending well means in your household: Different families have different value systems. Talk with your kids about why you make the kinds of purchases you make. Are you willing to spend a little more to buy something made in America? Something handmade? Something that supports small local businesses? Something earth friendly? Something organic? Something whose proceeds go to a cause you support? Something high quality? Something with lasting value? Whatever it is, don’t forget to talk regularly with your kids about what you believe and why you believe it. I think this stands true not only for moral beliefs but also for money beliefs.
9.) Tame the Grandparents: If you are trying to be intentional about raising money-smart kids, you will eventually find that you need to have a conversation with the grandparents (or Aunts, Uncles, babysitters, etc.) and solicit their buy-in. Ask them to run any intended gift purchases by you to make sure they aren’t just giving your child something they’ve been working hard to purchase themselves.
9.a.) The exception: My tune on whether or not it’s okay for the grandparents to spoil my kids changed a little when my husband’s mom died all-too young. We now stand by the adage “Grandma’s house, grandma’s rules”. However, it doesn’t mean that we forgo having those tough conversations to do our best to make sure Grandma isn’t sabotaging our efforts to raise money-smart kids.
When we went to Circus Circus in Reno with my mom and step-dad last summer my mom gave them some money to spend. I made my kids budget the amount they were given over the days we were going to be there and gave them strict instructions not to ask for any more. However, they were told that they could graciously accept any additional money with a “thank you”. It was hard to enact #4 and especially #4.a., but again, sometimes rules have exceptions!
10.) When it’s gone, it’s gone: Please, for the love of all things good and holy, don’t let your child think of you as a glorified ATM. That’s not how the real world works. If kids aren’t able to make the work=money connection, they will find it very easy to spend money on foolish things. Because my kids have learned the cold hard truth of “when it’s gone, it’s gone”, they have become very thoughtful about how to make the best use of their money.
These are some of our family’s favorite tips and tricks for helping our children to spend their money wisely. If you are looking for a comprehensive guide to help you teach your children to become money-smart kids, I can’t encourage you strongly enough to pick up the book Smart Money Smart Kids by Dave Ramsey and his daughter, Rachel Cruze. If you pre-order before April 22nd, you also get $50 in cool freebies!