“Prepare the child for the path, not the path for the child”.  The wise adage was on my mind when my wife and I formulated our approach to instilling (or trying to…) sound financial principles in our boys.  In my last post, I promised that I would use today to share with you a money-management system that we’ve used to help our kids build strong financial habits.

First, a word about allowances.  As parents, we often use allowances to entrust money to our children – typically in an amount that can’t hurt them but will give them a taste of independence.  The one downside is that it might well have the unintended consequence of instilling a sense of entitlement if the allowance is presented as an unconditional gift.

We’ve never really given our boys an allowance.  However, ever since the kids could help around the house (sweep the kitchen floor, empty the dishwasher, take out the garbage, clean the bathroom sinks and counters), they were assigned tasks.  In exchange for the satisfactory completion of these tasks, they were paid a salary.  Work got done – salary paid.  Work didn’t get done – no salary, with the explanation that we had to pay someone else to do that job.

Now, I don’t know whether their response was gender-specific, but our two boys latched on to this pretty well after a couple of situations where we had to withhold payment or at least delay it until the task was done.  If you have daughters and have done something similar, I’d love to hear how it went…

The key is staying consistent and judgment-neutral.  Consistency teaches the children that this is how the world works and they are not left guessing how their contribution is going to be evaluated.  Remaining neutral reinforces that same principle; we don’t harp on them for not doing their job, but it seldom takes long to get agreement on whether or not the task was completed, and it’s a simple yes/no answer that triggers the salary.

Prepare the child for the path, not the path for the child

Once they received their weekly or bi-weekly salary, (as I recall, it was $5/week) there is some accountability for how it was allocated, and to help the boys out we provided them each with 3 mason jars.

Into Jar #1 went 10% of their salary for community/tithe.  For our boys, this was given to our local church; otherwise, it could go to a charity of the child’s choice.

Jar #2 was for longer-term savings – another 10%.  It was still their money, but they were passing it ahead to their future-self (who we assured them would be delighted to have it later!).

The remaining 80% went into Jar #3 and could be spent as they chose.

We believe that this approach underscored some important money lessons:  generosity in their giving, deferred gratification with savings, and abundance with their 80% spending money.  They would quickly find – as would most of us – that we can accomplish as much with our 80% as we would with 100%, simply because of a heightened discipline.

As our boys matured, they evolved into being employed by others.  They both hold down part-time jobs while attending school (our oldest at university and youngest getting ready to graduate from high school), and the amount that they earn, of course, has expanded beyond the $5 that their frugal parents offered.  The 3-Jar Principle still applies, although we have made some adjustments to account for the increased income.

The tithe jar still attracts a minimum of 10% of their take-home pay.  However, now the savings jar retains 60-70% of the pay, leaving them with 20-30% of their income for discretionary spending.  And the jars are now only symbolic as both have moved to an excel or Quicken platform.

Why so much in savings and so little for spending?  Simple.  Earning an education beyond high school is something that we see as important – moreso than when we were kids given the competitive job-market.  Their savings pattern has enabled them to each save significantly toward their education goals.

We decided that we would cover the basics for the boys as long as they were in school.  For us, the basics include the necessities of food, clothing, shelter and long-standing hobbies (Model United Nations conferences for our university student and rep hockey for our senior high-schooler).  Other families may modify the amounts, but have the youth responsible for more items – all expenses except for food and shelter, for example.  That’ll work, too.  The main focus is on having the kids give, save and spend their money within their limits.

Not a bad place to start in preparing children to live financially successful, regardless of their future income levels.  There are plenty of creative approaches to this issue that others have used effectively… if you’d like to share your ideas with others, I’d welcome your comments!