When teaching Junior Achievement classes I always point out that while money can’t buy you happiness (really – studies show that aside from abject poverty money won’t make you happy), mismanaging money can buy you unhappiness. So we’ve tried to teach our kids how to esteem money properly (give 10% or more back to God, save 10% or more for retirement, avoid all debt except a mortgage and pay it off when you can, etc.)
When the girls were young we went the classic savings account route with them. But when interest rates kept dropping the message became counterproductive. The Credit Union interest was 0.2% – not two percent, but point-two percent. As in 20 cents per year on a $100 account balance – hardly an incentive for savings.
I closed the accounts and set up accounts for them in my Quicken database. I started paying them a 10% annual percentage rate and added it to their account once per quarter. It was a simple way to encourage savings.
It also had the benefit of introducting them to Quicken and tracking their spending. They now have separate accounts for spending, savings and clothes.
Earlier this year we gave them credit cards to use. This was a little bit of a concern, since studies show that people spend 18% more when using credit. But both girls (currently in 9th and 11th grades) watch their savings balances like hawks so they see the balances go down as soon as they buy anything.
The girls use their credit cards for all their purchases then code them into the appropriate accounts in Quicken (clothes, spending, gas, groceries, etc.).
They also learned how to reconcile the credit card statements in Quicken so they know how that process works. And they see that credit cards are for convenience and that we only buy things when we have the cash in the bank already.
We give them a normal allowance plus a clothes budget, so they have learned to monitor their spending and make trade-offs (i.e., buy more clothes that are less expensive or fewer clothes that are more expensive, or a mix). They are terrific shoppers and work hard to get good deals. We have baseline you’re-part-of-the-family chores (dishes, laundry) though we’ll pay them for extras sometimes.
This process might not work for everyone, but it has been very useful for us.
Do you have any money management tips to share?