Teaching Children The Value Of Money

Teaching How To Save

I am often asked how to teach the value of money to children. There are many ways but one of my favorites is the “envelope” method.  T. Harv Eker teaches something similar to it in his book Secrets of the Millionaire Mind.  But John Nordlander, CEO of Cambiare Group, offers this great example that he used to teach his children the value of money.  When he first told me about it during an interview, I loved it so much that I wanted to share it with you:

Inger Johnson: So what is an envelope system?

John Nordlander: Well, the envelope system [started out with the use of] three envelopes [with my children].

Inger Johnson: Three envelopes, okay.

John Nordlander: Three envelopes; the first envelope was, let’s say for example, every dollar we would cut into three pieces.

Inger Johnson: Okay.

John Nordlander: And the first piece was what you can spend, the second what you need to save, and the third what you need to give.  In other words we tried to instill in them early on a sense of philanthropy or giving, giving back.  And so at that time we used three envelopes.  Now as they got older we increased the number of envelopes.

Inger Johnson: Okay, to….

John Nordlander: well, we would increase it to clothes, cars. That’s how we kind of taught budgeting, which is the old fashioned simple; okay I’ve got TV, I’ve got my public service, I’ve got food, I’ve got car., I’ve got gas, I’ve got rent, etc, etc that we moved on into as adults, at least that’s kind of the way I was taught.

Inger Johnson: So you would give them fair allowance and put the allowances in different envelopes and say, here you are.

John Nordlander: No it was their responsibility to define those amounts.  We didn’t tell them what the amounts had to be.

Inger Johnson: So how did they do that?  They had some kind of guidance?

John Nordlander: Well we kind of taught based on [our] values. What we tried to get them to understand was you’re saving now for spending later.  And yeah you want this for spending, but we wanted them to understand that savings at their age was better than spending, although, by the way, you can take from your savings to spend if you need to, if it’s valid.

Inger Johnson: And how was it validated?

John Nordlander: Well depending upon the size, we add in. My son wanted a 10-speed bike and he had saved and saved to get the 10-speed bike and what was happening is he had a tendency of spending everything from the spending envelope almost instantly.

Inger Johnson: Of course.

John Nordlander: Yeah, it’s gone and so I said ‘alright, if you cut back even some more on your spending, you’ll get to your bike quicker.’  And we would use carrots, we’d always keep the carrot out there in front of them and I would make a deal with them.  Okay, if you can get to a certain level, I’ll help you to where you can get, where you need to go.’ There was never half.  It was always like ¾. We just really thought that the earlier that they can learn that you just don’t get everything in life that you want, but you can get the things you’d like if you work at it and if you save.  And then all of us have, here’s the bonus, there’s that unexpected money that comes to us, our gifts.  Somebody gives us a gift and so we try to help them understand that life does have other aspects.  It’s not all work.

What methods have you used to teach your children the value of money?

So, the Allowance Is No Longer Enough?

As kids get older, their needs change and they may feel that an allowance isn’t enough money and they would like to earn some additional money.  Also, one day, your child will need to earn a living.  Kids can get an edge on the work world by starting early and in doing so they will gain valuable experience working with different people, learning about managing money, have some money to spend once they get older, and/or save for college.

At this point, you child is ready for a job.  Sometimes this transition into the “job” phase of life runs smoothly.  However, often there are some bumps along the road.

I gained some insight into this life-stage in a recent radio interview I did with Doug Root, the owner of Jungle Quest.  Since 1988, first through the YMCA and later through Jungle Quest, Doug has processed thousands of teenage job applications and has hired many, many teenagers.  I’m going to share with you some of his words of wisdom.

Kids:  Why do you want to work?  The answer better not be, “because I need the money or because my parents want me to.”

Parents:  You are not responsible for getting your child a job.  Now, I know you want your kid to get a job.  But that doesn’t mean your kid is motivated to get a job.

So, parents.  How do you make sure your kid really wants a job?  Again, let me say, YOU are not responsible for getting your child a job.  I don’t care how much you want your child to want to get a job.  Unless, they are motivated, they won’t get one and, if they do, it won’t be for long.

The answer:  Dry up familial resources.

Here’s an example. if I’m a kid and I’m 16 years old and I’m getting a $20 a week allowance, what do I need a job for?  If I get a ride to the movies every time I want one, what do I need a job for?  If I get a clothes allowance, what do I need a job for?

So, we’re back in the trap of, well, just pretend to apply for jobs and then mom will yell at me and then, I’ll apply for a job and then, I’ll tell her that I probably got a job, and then, I’ll get another 10 days of not having to mess with it.

Parents… here is what you do.  You basically share their pain.  It’s a lesson out of tough love.  You dry up familial resources.  So, you could say, “starting in 30 days, when you want a ride to the mall, you’re going to have to pay for the gas.”  “In 60 days, we’re going to cut your allowance because now you’re 16 or 17.  Well, “How can I get any money?”  “Well, get a job.”

Another way to add motivation to your teenager is to  offer to give them the allowance back once they have a job.

Let’s say they get $10 bucks a week as an allowance.  Well, come a month from now, no more allowance.  But, if you get a job and your paychecks are $30 dollars, then, I’ll give you your $10 allowance.

So, dry up the allowance.  You can give it back once they get a job.

I’m going to highlight something here.  There are two very different things:

1)    Looking for a job

2)    Getting a job.

A teenager ought to be able to get a job in a month…at the most two months.

Now, its might not be a great job.  In fact it might be a lousy job.  But, that can create motivation too…

All in all, the stage in life when it is time for your teenager to get a job can be trying.  The quicker they get motivated to do it, once they are ready, will make your life and theirs so much more enjoyable.  To hear more insights, click here to listen to the archive of this show.

Have you had experience with this subject?  I’d love you to share it with me.