I will be the first to tell you that when it comes to finances, I have made no shortage of mistakes. I have found that over the years, that even though I did not make extravagant purchases, I often felt the financial pinch. When I made mistakes or poor decisions, I would resolve to work hard and be disciplined enough to correct it. I would put the specific issue in the past, only eventually resurrect it or give life to another one.
As I got older and started to actually attempt to learn about finances by reading books and such, I often realized that I didn't just need to change my habits, but I needed to changed the way I actually viewed money. I remember telling my wife Alaina, that I just wish I had been taught how to view and manage finances when I was a kid. The only problem was that I had no one to teach me. I wasn't Oliver Twist or anything, but the people that raised me couldn't possibly teach me what they themselves didn't know. I'm not upset with them, because they didn't have anyone to teach them either. However, I made a vow that my children would be taught, and they would be taught early. So once we started teaching our children, people started asking us how? Today, I am happy to share exactly that with you.
So just set the stage, my wife and I are raising three little people. My daughter is six and my two boys are four and about a year and a half. They are bundles full of energy, which can be taxing to try and harness and direct, but their amazing little brains are sponges! I also realized that if we wanted to help instill good habits in our children, it was important to start it a long time before they were old enough to have their own jobs.
I had already been thinking about how I wanted to teach my children and I had a basic idea of money compartmentalization, when my wife Alaina told me about something she had just seen on television. It was a TV show that was discussing a method that Jewish parents used to teach their children. Now all jokes and snickering aside, when a Jewish person is willing to share financial tips, most people listen (at least I do). The Jewish person explained that the teaching is based on a simple 5 jar system (Now I like the 5 jar model, but if you are starting with young children, the 3 jars is simpler).
In the Jewish 5 jar money allocation system, each jar has a specific purpose. The jars, in order, are tithes, offerings, savings, investing, and spending. The child is taught that their earnings are to always be allocated into the 5 jars accordingly.
First 10% goes to tithes.
Secondly 10% goes to offerings/giving.
Thirdly 10% goes to savings.
Fourthly 20% goes to investing.
Fifthly the remaining 50% goes to spending.
Now I realize most people's first reactions is that this is impossible. The truth is, if you are unwilling to change how you view finances, then you are correct. Is this a system that my wife and I, as adults, are able to fully accomplish? Not even close! But we understand it is a process, and we are working on it. So take a deep breath. The good news though, is that unless your children are grown up, then it will not only be possible, but even easy for them. Why? Because you had the ability to help them form an understanding of how money should be effectively managed, so it doesn't manage them for the rest of their lives.
So here is what we did with our four and six year old. We have a couple basic chores that they are required to do throughout the week. It's basically little more than picking up their toys and make their beds. If they do it more often than not, we reward them with a weekly allowance. Now before you make excuses that you can't afford to give your kids allowance, let me waive the B.S. flag. I never said how much you need to give them. My kids each get a single dollar, and they think they are getting rich! But the truth of the matter is, if we only gave them each 10 pennies, they would still be excited about it. My only recommendation is to make it an easy number to divide, based on the number of jars you will use.
Next, we gave each of them a set of three containers. You can use jars, cups, or whatever you have. We used clear plastic disposable cups (clear is best because of the visual element). Then we used a sharpie to label each container. For our family the three jars were labeled God, savings, and spending. Now if you are not a person of faith, then no big deal. However, I encourage, dare I say challenge you, to at least label the first jar as giving.
Again, to keep it simple, we then we give each child four quarters. The first quarter goes into the jar for God. The second quarter goes into the savings jar. The final two quarters go into the spending jar. It is also important that the allocation of the money is done in this same order too.
After just doing this for a few short weeks, each child was able to explain the following to us:
What was required to earn allowance
The amount of the allowance
The order of allocation
The amount to allocate to each jar
The purpose for the money in each jar
The way to use the money in said jars
Overtime can we modify this to make it resemble the aforementioned Jewish model? Absolutely. Do we need to? I don't think so. The only necessary "change" is that if you stick with the 3 jar model, you will want to teach them to invest at least half of their "savings". If changing to 4 or 5 jars makes that easier for you, do it! The key is making it simple, fun, and doing it consistently. With this simple 3 jar system, we have taught out little ones that they can give 25%, save 25%, and live off 50%.
And you know what the coolest thing about all of this is? Because we are able to teach them at such a young age, they think that spending even just 50% is great. They are happy to save 25% and eager, yes eager to share the other 25%. Parents, I can honestly say I have never been so happy to pay an allowance.
If you have used this system to teach your children, please let us know. We would love to hear it!