Teaching Kids about Money: 7 Surprising Lessons Learned by Putting Our Kids on Salary

The Plan: Teaching Money Management to Our Kids

After several years of trying to improve the situation, my wife and I accepted that no amount or frequency of talking would correct our kids’ perception of the value of money, the importance of discerning quality products and enriching experiences, saving, or understanding immediate gratification versus wise spending.

We decided to give the children ownership over the money flow in their lives to “make it real” and “bring it home.”

We decided to give them a “salary”!

Yes, a salary—not an “allowance” and not tied to chores.

We put them in charge of all their personal expenses, with the exception of staple foods, lodging, and birthday gifts for friends. (I must admit that the idea of charging rent based on bedroom square footage lingered in my mind until my wife slapped it out, though I still think it would have been an interesting, if not useful, twist).

We Put Our Kids on Salary

In executing this plan, we made several decisions and choices tailored to our family dynamics and the kids’ personalities and abilities. I admit that these specifics may not be ideal for every family or child.

For instance, we decided to compensate the four kids loosely based on their ages.

Why?

Our thinking here hinged on a few observable differences in needs.

For example, the eldest child, then in high school, had arguably greater clothing requirements than the seven-year-old, whose vast stash of hand-me-downs significantly reduced her need to buy clothes.

We created a three-tiered weekly pay scale of $25, $15, and $5, with the kids’ “salaries” increasing as they got older.

We Paid the Children with Cash

We decided to make all payments directly to the kids in cash.

Why?

Well, there were two main reasons for this:

1. This element served to make it very clear to each kid exactly how much they were getting.
2. When they added it to their savings, they could readily see any increases.

Our older three kids had online banking privileges for their checking accounts, so we could have easily moved money electronically to their accounts.

But we didn’t!

We believed that digital numbers and electronic balances might not have the same impact as the feel and smell of hard currency being passed hand-to-hand, manually counted, or quickly spent, leaving an empty wallet behind.

That said, we encouraged the kids to do a few things, mainly:

1. Deposit most of their money into their checking accounts.
2. Keep a small amount of petty cash in a wallet.
3. Use their debit cards when making most purchases at stores.

While there may have been merit, for the same reasons mentioned above, in having them pay in cash, we thought that kids’ tendency to lose things and society’s increasing reliance on non-currency-based payment mechanisms made debit card use a prudent and useful part of the overall plan.

It also opened up several discussions about credit cards versus debit cards and when it’s appropriate to use each. (We advocated spending only money that you have—i.e., use the debit card—and keeping a credit card or two in reserve for emergencies only.)

What the Salary Did and Didn’t Cover

With all the components worked out to our satisfaction, the kids were then put on the hook for all their own expenses except:

• Staple foods
• School supplies
• Birthday gifts for friends (lest they mismanage funds and get miserly with their friends—that’s a social lesson for another time).

The salary covered:

• Clothes
• Entertainment expenses
• Social outings
• Additional gifts or treats purchased for someone else

How they allocated their salary to each category was at the discretion of each individual child.

The Lessons We Learned

As this grand experiment rolled out, we were pleasantly surprised to discover that we had underestimated the number of lessons to be learned by the kids and parents alike.

We were all in for quite an educational adventure.

1. Caveat Emptor

This lesson hit hard a few times before sinking in, but it left all our kids far more focused on product quality over flash and price.

In one instance, in an attempt at frugality, our son ordered a set of headphones online, focusing primarily on the price tag.

After trying out his new product, his regret over the purchase was written all over his face—especially when he realized he would need to spend even more money to cover return postage or settle for an inferior product.

2. They Developed Buyer’s Remorse

After a few bouts with this, we saw our kids becoming more careful about whether they really needed—or just wanted—an item.

They began to discuss purchases with us and each other before making a buy.

They began to favor practicality over bling.

For example, after saving up enough funds to buy an iPhone, our oldest daughter became obsessed with finding the perfect case. She spent hours researching the ideal color, design, and popularity.

Only days after receiving her non-returnable prize in the mail, she began to second-guess her purchase. She questioned whether it was wise to spend so much on a protective device and wondered if the pattern and color were really the perfect fit after all.

Ultimately, she decided to buy another cover and try to recoup her losses by selling the first case on Craigslist.

After weeks of no customer interest, she donated the case to the Salvation Army, wrote off the loss, and promised herself to be more prudent with future purchases.

3. Their (Money) Value System Shifted

In what was probably the most comical lesson for my wife and me to witness, soon after launching our new financial program, the kids quickly changed their clothes shopping preference. They moved from high-end retail shops in the nearby glitzy mall to stand-alone discount clothing stores when they realized they could spend less on outfits (freeing up funds for other desired items and activities) and still come away with decent quality, albeit less trendy, clothes.

In some areas, such as movie entertainment, values other than frugality prevailed.

While we offered to spring for food and drinks if the kids invited friends over to watch a $1.00 vending machine movie, they always chose to spend more of their own funds to get away from the parents and go to the much costlier cinema.

Another value shift occurred in the form of gift preferences. When asked by relatives about what gifts they would like for various occasions, cash quickly replaced specific items as their top pick.

4. They Have Different Learning Levels

As parents, we quickly learned that not all the kids were picking up on their mistakes—and those of their siblings—to adjust their money habits, or that they had very different timelines or priorities when it came to learning in this arena.

One child quickly amassed enough money to purchase her own high-end tablet, while another (only one school grade apart) allocated a sizable portion of her funds to music downloads, buttons with rock band names, and even stuffed animals.

One kid, after focusing on saving her money, began donating to charity, while a sibling invested in soon-to-be-lost throwing knives, electronic kit components, and smoothies at the mall.

On one occasion, during a growth spurt, one of the frivolous spenders did not have enough money to buy a much-needed new pair of jeans (their “high waters” nearly sparked a new fashion trend at school).

They are all different:

• The saver
• The tinkerer
• The pop culture junkie
• The philanthropist

Occasionally, we would stumble across conversations in which one kid was scolding the other for spending patterns, or there was talk of who had saved more or made the smartest purchases.

5. They Became Financially Responsible

After a few misplaced wads of bills and wallets, the kids quickly learned to secure this increasingly important thing called “living-expense money.”

Requests for bank runs to make deposits became as frequent as requests for runs to the mall.

In a similar vein, the kids quickly learned that saving receipts could mean the difference between a happy exchange or return experience and something more difficult (store credit only or outright refusal to do anything).

6. They Became More Generous

As some of the kids became natural savers and others occasionally found themselves short on funds, an informal system of interest-free lending arose in the house.

The biggest learning point here was the concept of receipts, as no one seemed to be able to keep track of exactly how much was owed by any given child.

One high schooler lent money to a friend and learned the hard way that borrowers do not always repay. (Discussion of this incident around the dinner table made it, and other learning points, sink in among all the kids.)

Truth be told, Mom and Dad occasionally borrowed from the savers among the brood.

In a related vein, we also witnessed signs of “giving back” in instances where one or more of the kids would offer to cover the cost for a family outing—to get noodles, for instance—or chip in on birthday gifts for others.

7. They Developed a Sense of Entrepreneurship

Once the kids began to see what they could do with personal funds and discretionary spending authority, we saw growth in their interest in bringing in yet more money.

A number of discussions about entrepreneurship led to a few interesting, albeit short-lived, initiatives.

Our youngest, during a grocery run, purchased a box of high-end ice cream treats and, upon returning home, quickly sold enough of them to her siblings to recoup her cost and pocket a small profit.

Our second eldest decided to ramp up her help with our beekeeping by managing her own hive and getting involved in the sale of honeycomb at a local farmer’s market, while our son—fascinated with culinary and medicinal herbs—made a few sales of his homegrown lemon balm at a community festival.

Two of our girls, with Mom’s help, secured a food vendor license and tried their hand at selling homemade biscotti at the local farmers’ market.

One of the kids is currently mastering the art of homemade vinegar (from bananas) to try to sell as a vinaigrette component to fashionable restaurants in our area. (Beyond pure finances, these efforts also educated the kids on issues of business permitting, labeling and labeling laws, marketing, and direct customer sales.)

Also, when Mom and Dad, as part of a small family side business, decided to become distributors for an heirloom seed company, the four kids were invited to put up the needed capital as “investors” to get us started.

They voluntarily put in one-fourth each (some $105 apiece) for the start-up cost, with the promise that they would recoup their initial investment once sales put us in the black and then continue receiving (among the four of them) 50 percent of the profits until they decided to sell out their “share.” (The other fifty percent goes into the family business bank account.)

Within one year, they all recouped their initial investment, began receiving 50 percent of the profits (split four ways), and adamantly refused to sell out their parts to Mom and Dad (or each other). (One asked for $300 to buy out their portion, but the other siblings refused.)

Beyond some fledgling attempts at business, this newfound interest in income generation also led to job searches.

Our eldest has since secured certification and work as a lifeguard and part-time work at a restaurant. The second in line picked up a regular long-term daycare gig and previously locked in a good dog-sitting job, while the boy has locked into regular work at two ranches.

In all cases, the majority of their earnings are going into their college savings accounts.

Parenting Tool

As the kids began to really value their money and understand issues of budgeting for necessities (clothing), we realized that—as in other parts of civil society—a system of fines could reduce undesirable behaviors.

Losing $5 for failure to stay on top of a chore, for talking back, or for other misbehavior quickly became more serious than time-outs or privilege restrictions.

Other Opportunities for Teaching Kids About Money

Finally, I’ll note that along the way on this journey, we identified a number of additional facets of financial education that we could have employed if we had the time and energy.

Investing, for example, is something we considered introducing (relatively safe, tangible instruments like bullion-grade coins and treasury bills).

A greater emphasis on the socio-economic role and power (and personal satisfaction) of philanthropy may have been beneficial as well.

As noted above, one child was naturally inclined in this regard, but the others were resistant to the idea of giving away money, whether it be for the church offering plate, the bell-ringing Salvation Army Santa, or other venues.

That said, we recently watched with pride as one of the typically stingier kids spent their own funds to put together a Christmas box for a child in the third world. Maybe something was learned more broadly in this arena after all.

Guest Writer Bio: John Atwell and his wife of twenty years are currently working with their four homeschooled kids to establish an organic, sustainable homestead on the Big Island in Hawaii.