Friday, March 18, 2011

It Is Time To Teach Our 5 Year Old About Money

I have always been able to walk through a store with my kids and they wouldn't beg or plead or ask me to buy anything for them...

Until yesterday. When we had a little episode at the Rite-Aid. I stopped in for a few things and as we were headed down the make-up aisle on our way to feminine hygiene, my five year old stopped dead in her tracks when she passed Skittles Lip Smacker Lip gloss.

5 yr: "Mommy, Can I get this? I'm being good today."

Mommy: "You are being very good and I appreciate that, but that is not what we came in for today."

5 yr: "PLEEEESE!"

Mommy: "Did you bring your wallet with you?" I knew she had a few dollars from her recent 2 lost teeth and a visit from her grandfather.

5 yo: "No, it's at home. Can't we use your money?" (Imagine a whiny, tearful 5 year old)

Mommy: "Not for lip gloss honey. I will buy it for you, but you're going to have to pay me back when we get home. Do you understand?", I reply.

5 yo: "OK!" Tears gone and her smile returns to her face.

When we got home, my daughter went to get her wallet. The lip gloss was $5.75, but I told her that she owed me $5. She counted out 5 $1 dollar bills and was ecstatic when she realized she had a dollar left. She handed me the $5 without even flinching and that is when it hit me that it was time to start talking about money with her.

This was literally the first conversation we have had about money. She has gotten cash in the past for her birthday or Christmas, but she would have preferred a toy so I have deposited the money in her savings account. She is at the age where she wants things like lip gloss and sticker books when she sees them. Are those things that I should just buy for her because she asks and because she is being good? I don't mind the occasional treat, but I don't want it to be expected and become a habit.

My husband and I have to decide how we want to teach our children about money. We both agree that we'll have an allowance system, but we need to think about how we want to handle it and what kind of system we'll use.

There are many lessons to teach and many things to consider.
  • What will her responsibilities be? Making her bed, setting the dinner table, and putting her clean clothes away are all things she does now. So I don't necessarily want to pay her for those things. What other responsibilities should we add for her to receive an allowance?

  • How much should we pay her? She is in preschool, so her math skills are very limited. She doesn't understand that 4 quarters equal a $1 yet. Or that 2 dimes and a nickel equal a quarter, so this could be a good math lesson.

  • We want her to give a portion, save a portion and she can spend the rest. But should we have rules on what she can buy with her money?

Do you have kids? How have you used an allowance system to teach your children about money? How does your system work? Let us know in the comments.

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  1. Good morning! We are not currently doing this, but I wrote about the "give, save, spend" plan that we learned from Dave Ramsey in this old post of mine. It works great and we need to do it again!

  2. We've got 4 young kids, and I finally like how we're handling this. We have a binder called The Bank Of Mom. Each kid has three"pencil case" envelopes -Save, Spend, and Tithe. The weekly allowance is $2.25...$1 for spend, $1 for save, and the quarter (10%) is for church. It is very easy to manage and for $468 a year, we are able to teach the kids about giving, saving, and financial goal setting. I think its a great investment...and the kids love it too. It also provides a "spot" for their birthday money and for the extra money they earn for doing extra household chores.

  3. for my son (3yo) we give a "salary" for doing his job of 25 cents per year old. His "job" is to be a kid. As he gets a little older and starts to understand things like chores, we'll offer "bonuses." When we get to that point, there wil lbe certain chores that are expected (clean up, make bed...) but if he's willing to do extras, he can earn a bonus.

    As for limiting what he can spend it on, we don't/wont. when he starts to understand money a little better, we'll put some limits on in (% dedicated to long term and short term, as well as free spending money). My opinion, 5 is still too young to understand the value of an item in relation to it's cost.

  4. I have three daughters and over the years we have developed a system regarding spending money that works for us. The girls get no extra money for doing their daily chores, like making their beds, cleaning their rooms or helping with the dinner and dishes. However if they need or want extra money I give them extra duty jobs and pay them for their work. For example if they want to go to a b-day party and they need to buy a present I may give them the job of cleaning the blinds, washing windows or pulling weeds in exchange for the money to buy a gift. This is a win win situation for our family as the work gets done, they learn the value of money and the work required to get it and we get some much needs task completed around the house!

    1. This is how my sister and I were raised, I think it's a good system :)

  5. Dave Ramsey's Financial Peace Jr. is a great way to teach kids about money!

  6. My suggestion:

    Tell her the "basic" chores that she's already doing = teamwork for being a family member. No pay.

    If she wants to go above and beyond, make a list of "extra" jobs she can do, and the pay rate for each job.

    Then she'll learn to associate $1 with having to complete a given task ... and she'll start seeing money not as a piece of paper, but as a symbol of effort. Then she'll be more careful about what she trades that effort for.

  7. I'm with Afford Anything. My kids have chores where they do not get financially compensated for. We explained that we don't get cash every time we cook dinner or clean a dish. It's something we do as a family to help keep the house in order.
    They do have allowance for 'deep' cleaning the house. They pick 3 chores a week to do.
    When they were 10 I handed them a monthly cash amount for clothing. They took charge of purchasing all of their clothing (including underwear, socks and shoes). It was the greatest thing I ever did. We'd be at Target, they would turn to me and say, 'can I get that T-shirt?', I'd respond, 'I don't know, can you?'.
    We still need to institute a regular savings program. When they get money from relatives a portion goes to their savings but it's all over the place.

  8. Thanks everyone! You have given me some great ideas to think about. I am in agreement that there are things we all do as a family that we don't get compensated for; teamwork as @AffordAnything called it. I also like @Jackie's "Bank of Mom" for managing the money, especially when my kids are so young and I find coins and cash stuffed in many crevices in their room. They have not learned money's value yet. Thanks for reading and commenting.

  9. My problem is unique. My kids hardly ever ask to buy anything! All their money goes into the bank. Now what??

  10. We used Dave Ramsey's Financial Peace Junior and also the story books that go with it. We introduced the topic using the books. We also acquired "My Giving Bank" via to help the visual of watching the money grow. We use the Financial Peace Jr. envelopes in connection with the bank (for coins).

    While we don't limit what our 6-yr-old can purchase, we only allow him to take his money out when it's a planned purchase. i.e. He doesn't browse with a pocket full of money...he sees what he wants and then a couple days later, if he has enough money, we'll take him to buy it. He's not allowed to buy anything a month prior to his birthday or Christmas, though.

  11. @Astreil - you have a born saver. I guess that isn't a bad thing.

    @Jackie - I like your ideas. I need to incorporate the 'no buying a month before birthday and Christmas' for my husband too. He always screws up my plans.


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