Financial Freedom Toddler Style
We have been on a journey to better manage our finances for years. As with every family it is always an adjustment and what works for one doesn't necessarily work for another when it comes to the specifics. However, the budgeting concepts on a higher level can be applied to everyone. I won't go into detail about our choices except to say that we use You Need A Budget and have found it useful and user-friendly for our heavy-travel lifestyle. Graham and Isla have had piggy banks for a long time but they haven't received allowances until this month — starting two days ago. We are letting them earn an allowance by doing additional tasks around the house.
After reading up on how exactly I wanted to structure the allowance system I decided to do the 2-part system recommended by many financial experts. Each child will have general "citizens of the household" tasks plus additional jobs where they can earn money. Dave Ramsey is all the rage right now and honestly, when it comes to allowance (he calls it commission), I like his concept. We will also refer to it as commission for the future.
Graham is 5 and Isla is 3 so they will both be starting this new system. Lowell is 1... so his free ride continues a little longer. I'll be blogging along the way and letting you know how it's going. For now, we have separated their money into "spend now" and "invest now." Since, neither child has a toy they absolutely have to have right now they don't need an "earning toward" pot. If at any point they see a toy they want and don't have enough "spend now" money we will create this new jar for them and help them save towards the toy.
Step 1: Add up how much money has been collected in their jars up until this point and separate it into your chosen categories. (Keep it simple for young ones.)
Step 2: Open a savings account.
Step 3: Give them an easy way to carry their spend now money and keep it with them/you.
Step 4: Set up a chore chart AND explain that daily tasks (like cleaning your room) are just expected and part of being a member of your family. Lead by example.
The logic we are using to divide the tasks into "commission" and "good citizen" tasks are this: if it benefits the person solely or the need stems directly from their own actions — such as cleaning a mess of their own making — then it is a "good citizen" task. If it benefits the family as a whole or stems from actions not their own, they can earn commission by completing the task. Cleaning one's room, getting dressed, brushing teeth, picking up one's toys are general tasks expected of everyone at all times. Doing dishes, laundry, vacuuming are tasks delegated to the parents (as they chose to have children and increase their workload) EXCEPT when offered as a commission earning task for the child. It teaches them hard work while letting them earn a little financial freedom.
Overall, it is SUPER important to talk with your kids about finances. Show them that you make smart decisions and help them make smart decisions also. Our first trip to Target to spend their "spend now" money was successful. Graham had $29 and Isla had $25 from their piggy banks over their lifetime. They both spent some but not all of their money and are saving the difference for a future shopping trip. We saw several interesting dynamics play out on the trip. Graham understands the finiteness of the money a little better than Isla, as is expected with his age. He quickly found some little item which he liked, but didn't love. Soon he realized that if he could convince Isla to like it also, she would spend her money on the item, but he would still benefit from the purchase. My husband intervened and, once the situation was made more clear, neither child opted to spend their money on the item. Graham also dealt a little more with the fear of making a bad purchase. He found several items which interested him, but none, initially, that he just had to have. It took him far longer to make a decision, but eventually he found some toys that were new to him and relatable to some of our travels. Even better, the price point of the toys allowed him to buy several and have money left over. For saving, we opened bank accounts at a close bank so we can easily make deposits and deposited the other half of their accumulated earnings into their savings.
How much do we pay?
We pay them 50 cents per task right now. We are aiming for a total of $5/week for Graham and $3/week for Isla BUT if Isla works as hard as Graham they will get equal pay. Experts generally say to aim for $1/week to equal the child's age. So, a 5 yr old would make $5/week if completing the requested tasks.
I decided to make our chore chart because I couldn't find one I liked. I will do a separate post showing that when I finish it later this week. Let me know in the comments how your system works and any tips you may have...
Some posts I read: