Worried about how to approach the subject of money with your kids?
Friends and family giving all sorts of random advice?
Kids constantly whingeing for you to buy them stuff when you are at the shops?
Aims of the hack
Anatomy of the Hack
The Details
This is a very simple but powerful hack. Lets expand on it a bit more with some reasoning behind each idea.
1. Give your children an allowance, and let them buy their own stuff.
You are now placing your child fully in control of money, and the ability to buy stuff. It is no longer your responsibility to satisfy their need to buy discretionary items; toys, snacks, whatever. They will quickly learn that bugging you in the supermarket for that toy or collectible card or candy is not going to work anymore. They had the money for it, but chose to spend it on something else. This will happen quite a bit at the start, but stay strong and never give in.
2. Don't ever give in when they ask for more.
This bears repeating, and is a cornerstone of the hack. They will quickly learn that they are now responsible for their budget. You don't even have to call it a budget, its just a time honored money principle that will in very quick time become second nature. If they try the trick of emotional blackmail - "if you loved me you would give me .." you already have the moral high ground. You already gave them money for this thing but they chose to use it for something else.
3. Take a part of the allowance and put it in savings
Keep some of the money and make them put it in a piggy bank. This is an invaluable lesson in money management. Most adults don't do this, yet it is one of the most powerful principles of money management.
A great amount is 10%. Eg: If your child's allowance is $5, make them save 50 cents every week. This is not designed to save for something big, this is designed entirely to condition them to automatically save a portion of each and every bit of money they receive. Make the amount small enough that they don't miss it, small enough that it doesn't cause resentment. Make it a force of habit to do it.
An extension to this principle is to apply it to all the money that a child ever receives. From every source.
4. Don't ever give credit
Adults as a general rule cannot be trusted to responsibly handle credit. You may be an exception of course, but look around at the crazy debts that people allow themselves to get into and you would probably have to admit that as a species and at this point in time we are useless in the face of credit. These money hacks as presented are designed to enforce spending within a budget, automatic saving, taking personal responsibility for the decision on what to spend money on. Credit is the opposite of all of this.
Credit is undeniably a powerful investment tool, and probably deserves its own hack, but investment is an advanced concept that will necessarily come a bit later in life.
5. Make the allowance non negotiable and unconditional
Now this is the tough part for some people. They are tempted to tie the money to chore completion, school grades, achievements and all sorts of things. I would argue that there is a place for all of those things, but a monetary reward might not be the best idea for them. If a child misses out on an allowance then they are also missing out on the essential skills we are trying to teach them about money. Enforce the discipline of things like chores and study using a different mechanism - maybe restrict privileges like T.V, Internet, curfews etc.
Note: You may want to argue that this is not teaching the value of money - having to work hard to earn it. That's not the point of this hack - the point is acting responsibly once they have it. There will be plenty of opportunity in a child's life when they are old enough to get a part time job to learn to understand the time value of money. At the start dont make the money hard to get, concentrate on teaching what to do with it.
6. Pay the allowance weekly.
Repetition is a major key to learning, and will nicely reinforce the new habits we are trying to establish. When you do this for a year, it presents 52 learning opportunities. That is 52 times every year they get to experience the act of saving, the choice of whether to buy the first thing they see. 52 times the chance to reflect on having spent their money and now they have none to buy something that's even better than what they already bought.
Extra tip: Give the allowance money on a Monday. Chances are that you are not likely to go to the shops with your kids that day, and over time it will automatically train them to not want to spend the money straight away - automatic delayed gratification.
That's it. Start with these principles, and it solves lots of arguments and frustration. It teaches responsibility on the child's part. At first they will spend it straight away, and then ask for more. Over time and with repetition they will learn a skill that is sorely lacking in today's society This is so powerful on many levels, and teaches money skills that most adults do not understand, do not have the discipline for, and in a lot of cases doesn't even cross their imagination.
Additional tips
The only additional rule we started with is that they were not allowed to buy sweets or chocolate with the money. But that is of course up to you.
Some people make this allowance dependent on children performing their chores. We don't do this. We make chores a responsibility that is not tied to money - it is tied to self esteem, responsibility and family bonding.
If you feel the need to spoil your kids - and this applies to relatives - then perhaps do so with attention, love, time spent together. Maybe don't be tempted to let money define the connection between you and your child.
So how can kids make more money?
This is not necessarily a part of the hack. The money hack is designed to teach a child what to do with money.
We do pay money for jobs that the children do over and above what their personal chores are. Most of the time kids are actually happier when you give them a big hug, take them out somewhere special, devote even more time them. There is a direct loop here - it is win-win for everyone, the child gets a sense of achievement, increased self-esteem, a stronger bond with the family.
There are a multitude of books on the subject of how kids can make extra money. Keep it legal and safe.
When the right age is reached, a part time job after school will teach all sorts of lessons.
However, we have found that there are more effective ways of making money. Buy a cheap guitar, decorate it. Learn some one-finger chords, dress up real cute and with parental supervision go busking. Setup in front of a shop that has high customer turnover - best shops are where people buy a small amount, with change left over after their purchase. Ideal places are Bakeries, cafes, grocers. Always get permission from the shop owner. Children can make an unbelievale amount of money doing this.
Hack reflection
What are your thoughts about this?
Are there any additional ideas that can be used?
Are there good exceptions to some of these rules or principles?
Are there easier ways to implement?
Do you have a particularly clever solution that expands on any of these?
Friends and family giving all sorts of random advice?
Kids constantly whingeing for you to buy them stuff when you are at the shops?
Aims of the hack
- Learn to Save money automatically
- Teach responsible budgeting with money
- How to prioritize spending
Anatomy of the Hack
- Give your children an allowance, and let them buy their own stuff.
- Pay the allowance weekly.
- Don't ever give in when they ask for more.
- Don't ever give credit
- Make the allowance non negotiable and unconditional
- Take a part of the allowance and put it in savings
The Details
This is a very simple but powerful hack. Lets expand on it a bit more with some reasoning behind each idea.
1. Give your children an allowance, and let them buy their own stuff.
You are now placing your child fully in control of money, and the ability to buy stuff. It is no longer your responsibility to satisfy their need to buy discretionary items; toys, snacks, whatever. They will quickly learn that bugging you in the supermarket for that toy or collectible card or candy is not going to work anymore. They had the money for it, but chose to spend it on something else. This will happen quite a bit at the start, but stay strong and never give in.
2. Don't ever give in when they ask for more.
This bears repeating, and is a cornerstone of the hack. They will quickly learn that they are now responsible for their budget. You don't even have to call it a budget, its just a time honored money principle that will in very quick time become second nature. If they try the trick of emotional blackmail - "if you loved me you would give me .." you already have the moral high ground. You already gave them money for this thing but they chose to use it for something else.
3. Take a part of the allowance and put it in savings
Keep some of the money and make them put it in a piggy bank. This is an invaluable lesson in money management. Most adults don't do this, yet it is one of the most powerful principles of money management.
A great amount is 10%. Eg: If your child's allowance is $5, make them save 50 cents every week. This is not designed to save for something big, this is designed entirely to condition them to automatically save a portion of each and every bit of money they receive. Make the amount small enough that they don't miss it, small enough that it doesn't cause resentment. Make it a force of habit to do it.
An extension to this principle is to apply it to all the money that a child ever receives. From every source.
4. Don't ever give credit
Adults as a general rule cannot be trusted to responsibly handle credit. You may be an exception of course, but look around at the crazy debts that people allow themselves to get into and you would probably have to admit that as a species and at this point in time we are useless in the face of credit. These money hacks as presented are designed to enforce spending within a budget, automatic saving, taking personal responsibility for the decision on what to spend money on. Credit is the opposite of all of this.
Credit is undeniably a powerful investment tool, and probably deserves its own hack, but investment is an advanced concept that will necessarily come a bit later in life.
5. Make the allowance non negotiable and unconditional
Now this is the tough part for some people. They are tempted to tie the money to chore completion, school grades, achievements and all sorts of things. I would argue that there is a place for all of those things, but a monetary reward might not be the best idea for them. If a child misses out on an allowance then they are also missing out on the essential skills we are trying to teach them about money. Enforce the discipline of things like chores and study using a different mechanism - maybe restrict privileges like T.V, Internet, curfews etc.
Note: You may want to argue that this is not teaching the value of money - having to work hard to earn it. That's not the point of this hack - the point is acting responsibly once they have it. There will be plenty of opportunity in a child's life when they are old enough to get a part time job to learn to understand the time value of money. At the start dont make the money hard to get, concentrate on teaching what to do with it.
6. Pay the allowance weekly.
Repetition is a major key to learning, and will nicely reinforce the new habits we are trying to establish. When you do this for a year, it presents 52 learning opportunities. That is 52 times every year they get to experience the act of saving, the choice of whether to buy the first thing they see. 52 times the chance to reflect on having spent their money and now they have none to buy something that's even better than what they already bought.
Extra tip: Give the allowance money on a Monday. Chances are that you are not likely to go to the shops with your kids that day, and over time it will automatically train them to not want to spend the money straight away - automatic delayed gratification.
That's it. Start with these principles, and it solves lots of arguments and frustration. It teaches responsibility on the child's part. At first they will spend it straight away, and then ask for more. Over time and with repetition they will learn a skill that is sorely lacking in today's society This is so powerful on many levels, and teaches money skills that most adults do not understand, do not have the discipline for, and in a lot of cases doesn't even cross their imagination.
Additional tips
The only additional rule we started with is that they were not allowed to buy sweets or chocolate with the money. But that is of course up to you.
Some people make this allowance dependent on children performing their chores. We don't do this. We make chores a responsibility that is not tied to money - it is tied to self esteem, responsibility and family bonding.
If you feel the need to spoil your kids - and this applies to relatives - then perhaps do so with attention, love, time spent together. Maybe don't be tempted to let money define the connection between you and your child.
So how can kids make more money?
This is not necessarily a part of the hack. The money hack is designed to teach a child what to do with money.
We do pay money for jobs that the children do over and above what their personal chores are. Most of the time kids are actually happier when you give them a big hug, take them out somewhere special, devote even more time them. There is a direct loop here - it is win-win for everyone, the child gets a sense of achievement, increased self-esteem, a stronger bond with the family.
There are a multitude of books on the subject of how kids can make extra money. Keep it legal and safe.
When the right age is reached, a part time job after school will teach all sorts of lessons.
However, we have found that there are more effective ways of making money. Buy a cheap guitar, decorate it. Learn some one-finger chords, dress up real cute and with parental supervision go busking. Setup in front of a shop that has high customer turnover - best shops are where people buy a small amount, with change left over after their purchase. Ideal places are Bakeries, cafes, grocers. Always get permission from the shop owner. Children can make an unbelievale amount of money doing this.
Hack reflection
What are your thoughts about this?
Are there any additional ideas that can be used?
Are there good exceptions to some of these rules or principles?
Are there easier ways to implement?
Do you have a particularly clever solution that expands on any of these?