Teaching money management to kids

The Simple Dollar » The Money Savvy Pig and My Son’s Allowance

Another good idea from Trent, over at The Simple Dollar. A transparent, compartmentalized, piggybank does seem like a good way to teach money management to young kids. His plan hits the major keys of teaching: Tell, Show, Do, Review.

Obviously he’ll have to tell his son what he’s doing. Then he will show him what it looks like as the savings build. Though he doesn’t say it specifically, I’ll assume that after the first few times he’ll let his son actually put the money in himself (doing), plus he does say he’ll teach him what each compartment is for and how to use it appropriately (more doing). In discussing how to use the money and how the savings build up, he’s reviewing.

For the specific exercise of investing, his e-Trade idea isn’t bad, but I like some of the ideas in the comments:

For the invest part. Maybe once a year (or every quarter) you can take out all the money in there and have him help you count it. And then give him a percentage return. That way he has a more tangible understanding of how his investment grows. He can see “Hey, I left this money sit for a little while and now I’m getting an extra $5 for nothing!” At least until it can be put into the custodial account.

Drew @ 5:43 pm January 14th, 2007

That was my first idea as well. But “Enough Wealth” has a more complicated idea that will work well with a slightly older child:

But he also has some stocks that I bought him when he was born – he enjoys seeing mail arrive with his name on it, and we discuss the dividend statements (what a company is, what stocks and dividends are), and he likes filing away the DRP statements and watching the number of shares he owns slowly build up. He can relate to the stocks he has (one bank and one insurance company) as he can see the company signage on the hi-rise office towers as he drive over the Sydney Harbour bridge, and see the bank branches when we go shopping.

I really like the idea here for a couple reasons:

1. It engenders excitement: the kid gets to receive regular “important” mail, and can see the investment build.
2. It’s connected to his reality: he can see the physical presence of the companies he’s invested in within his community.

This isn’t really any different than the e-Trade idea, but it fleshes it out a little more. If you wait until you start the training with him to buy the stocks, you can even let him help decide which ones to choose (similar to Trent’s plan for charity).

As for what I’d do with my kids—probably something pretty similar. I think I’d change the charity plan a bit to include tithing, or figure a way to add a separate tithing category. Plus, after a few years, I’d let my kids decide the percentage of their total amounts to place in each category (with some advice from me, of course).

[tags]personal finance, money management, child rearing, parentlng, budgeting[/tags]

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