Over the past several months, we've been working on teaching our 5-year-old more about money and work and it has been fun to see him grow and to have him pitch in more around the house. Much of our approach is based on principles taught in Smart Money Smart Kids by Dave Ramsey and Rachel Cruze, the main one being the give/save/spend approach. Just like we do as adults, we encourage our children that every time they earn money, some of it should be given away, some saved for the future, and some spent.
Throughout the week, our kids can do a variety of chores that they know will result in various amounts of income. We try to keep the chores age appropriate but our younger daughter has surprised me by stepping up and doing chores that I intended to be for our older son. It's been a learning experience for us all. Some of the chores include:
- Emptying the dishwasher
- Folding/putting away clean clothes
- Filling up a toy box in the play room
- Filling up a bucket with pine cones to burn in the fire pit
- Taking out trash / recycling
- Get good behavior reports for a whole week at school
This list isn't an exhaustive list of everything our kids are expected to do around the house. As they get older, more difficult chores with more earning potential will be added (when is a kid too young to use a riding lawnmower?). As of now our 5-year-old has been averaging $2 in weekly earnings.
For us, the principle of tithing is something we strongly believe in and each week when we pay our kids it is an opportunity to teach about it. I make sure that when they are paid, we have sufficient change to carve out 10% (and for convenience sake all of the chores they can do are paid in amounts that divide by 10 evenly – no $0.75 chores around here!). One of the great conveniences of the internet is that we actually make most of our donations online and have done so since before our kids were born. The downside to this is that our kids never see us physically giving a donation at church and we wanted to be able to teach by example. Now that our kids have their own money this allows them to be the ones taking that action at church.
Once money has been set aside for tithing, we split the rest in half and put the first half in savings. I actually keep the money in the 'Bank of Dad', and we review a spreadsheet that I use to keep track of how much money they have in savings and how much they are adding to the total. I worried that it would be too abstract for them, but they seem to be just fine with knowing that they have money in savings somewhere. Plus, there's no way they can do better than the interest rates we pay.
In an effort to teach about interest, and for it to actually be something worthwhile, we pay them 1% interest per month (12% per year). On the first of each month, we'll pull out the spreadsheet and make a big deal about adding 1% interest to the month-ending balance. Some books I've read recommend lending your kids money at a similar interest rate to teach about debt but we have no plans to loan our kids money. I'd rather our kids learn to hear no and to tell themselves no than to go into debt. They already know that mommy and daddy don't borrow money and I don't want them to start thinking that it's ok for them to do so.
We haven't quite figured out what he is saving for yet, but the only rule I've made is that it has to be something that costs more than $20 since anything cheaper than that can be saved for relatively quickly. The topic of saving for college and cars will come up soon enough but 5 years old feels too young for that to sink in and we are saving to help with college separately.
After giving and saving are done, the remaining 45% of earnings can be spent however and whenever he wants. So far, most of the spending money has been spent at his school on ice cream. This isn't my first choice of how I would spend money but there haven't been any issues with him not having money for other small things he also wants so it's worked for now. I've been reminding myself that his preferences don't necessarily need to be the same as mine and so long as he's not spending money on something I actively oppose then there's no need for me to step in. For now his preferences are somewhat simple and he's been easy to please, but we're laying the groundwork to respond to desires for more and more expensive tastes.
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