How to Teach Your Kids to Earn, Save, and Manage Money
By following a practical strategy to earn, save, and manage money, kids can become financially fluent while setting up a solid economic foundation to fund their future dreams.
Sturgis Bank offers a School Savings Account tailor-made for kids, with a $1.00 minimum deposit to open an account, no minimum balance required, and no monthly service fee until kids reach the age of 18. Providing a competitive variable interest rate on the entire balance with interest compounded and paid quarterly, this account is a great way to teach and show kids how their money can grow.
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As parents, we teach our kids many skills and habits to become successful adults, from brushing their teeth and riding a bike to dinner table manners and learning to read. But, what about the essential skill of money management and the importance of saving? In a 2021 T. Rowe Price survey, 41% of parents said they don't like to talk with their children about money, expressing embarrassment about bringing up the topic. And while it's true that money management can be a complex topic to discuss, financial fluency is an essential skill for tomorrow's leaders. The good news is that if we teach kids how to earn, save, and manage their money while they're small, their money will grow right along with them.
The T. Rowe Price survey found that 75% of parents pay their children an allowance, with the majority requiring their children to earn the stipend they receive. The average amount is $19.30 a week, with most parents paying between $11-$20 per week. When asked why they paid an allowance, the most common answer was to teach kids the value of working to earn money.
So, how much should kids earn? One commonly used method is to pay children $1-$2 per week for each year of their age. Following this rule, an 8-year-old would receive $8 to $16 per week, while a 16-year-old would get $16 to $32 per week. Allowances are frequently tied to completing assigned chores to enforce the idea that money is earned and not given.
Starting as early as five and continuing until they are ready to leave for college, chores can grow in complexity as they progress in age. A helpful strategy for assigning tasks is to create a chart with daily and weekly jobs that kids must check off to earn money. Everyday items can include cleaning their room, making their bed, reading for 30 minutes, and putting clothes away, while weekly tasks can involve vacuuming the floor, emptying the dishwasher, cleaning the bathroom, and mowing the lawn. The children check off the chores sheet, which the parent then verifies before distributing funds. This method teaches self-discipline and accountability while rewarding a job well done.
Once kids have a process to earn money, what do they do with it once they get it? Piggy banks are a time-honored tradition. Make sure your child uses a clear bank so they have a visual of their savings. Ramsey Solutions recommends kids use a clear jar to keep their money in so they can see it grow. According to the financial gurus, "Yesterday, they had a dollar bill and five dimes. Today, they have two dollar bills, five dimes, and a quarter! Talk through this with them and make a big deal about it growing!"
The glass jar strategy provides an excellent visual, but parents can kick financial fluency up a notch by opening a savings account for their children at a local bank. The process of taking their glass jar of earned savings into a financial institution teaches the importance of keeping their money in a safe place while gaining even more through interest.
As their money grows, so will their desire to spend some of it on a new toy or gadget. This situation provides an opportunity to discuss money management and the responsible practice of assigning dollars for specific purposes and budgeting for purchases. A common approach is to divide dollars into three buckets, one for spending, one for saving, and one for giving. The proper ratio for each bucket will vary depending on age and savings goals. Still, it's essential to introduce the concept of giving by picking a charity, organization, or someone they know who needs a little help. This practice encourages generosity, and eventually, they'll learn that giving impacts both those who receive and those who give.
If a big ticket item is on the wish list, introducing a budget for these three categories will help your child work on achieving a savings goal and practicing a little patience along the way. Kids who learn how to manage their budgets will likely grow into adults with responsible spending and savings habits.
Talk About Money
The key to the Earn-Save-Manage strategy is consistency, including frequent conversations to make "money-talk" part of your routine. In that same study, half of the children surveyed said they wished their parents had taught them more about money. By starting the conversation early, parents can model and encourage good financial habits that will serve their children long after they leave the nest.