The Best $6 We Spend All Week

When we think of how we use money, we likely think of three things: spending it, saving it and sharing it. Those are the three core things we can do with money. Of course we can invest it as well but for this post, we’ll categorize that with saving. For most people who can afford to, a healthy mix between those three ways to use money is essential.

How to Define Money?

We know money is a medium of exchange that allows us to trade it for goods and services. It serves as a unit of account, enabling people to measure the value of different items and compare prices. Money also functions as a store of value, meaning it can be saved or used for future purchases or investments. Lastly, it plays an important role in modern economies, facilitating transactions and driving economic growth.

Let's Look at Money a Different Way

When we are first introduced to money, how do we view it? How should we view it? In this post I’m going to outline how we introduce money concepts to our 6 year old and how we’re teaching him about money.

Many of us in the personal finance field believe money should be viewed and used as a tool. Similar to a book. From the day our kids are born, we read to them. We know babies don’t understand what you’re saying when you’re reading to them, but we still do it because we believe it’ll be beneficial for their future literacy. This process is referred to as emergent literacy.

Emergent literacy - the period during a child's early development when they begin to engage with language and literacy-related activities even before they can read and write independently.

If we do the same thing with money, as we do with literacy, the reward would be raising money-smart children. There are many ways to incorporate money conversations into your children’s life even at a young age, here are a few:

Play: through play-based activities, children can engage in pretend scenarios, such as playing store or counting play money. These activities enable them to learn about basic financial concepts like buying, selling, and counting money, fostering their understanding of economic transactions.
Language development: Children acquire language skills through exposure to words, conversations, and stories related to money. They gradually learn financial vocabulary, such as savings, budget, expenses, and investments, as they engage in everyday conversations with their parents or caregivers.
Reading: Reading books on money-related concepts, such as budgeting, saving, or entrepreneurship, at an early age can help children understand the value of money, different forms of currency, and financial decision-making.
Critical thinking and problem-solving: Engaging children in discussions about money-related issues, such as needs versus wants, opportunity costs, and the importance of making informed choices, helps develop their critical thinking and problem-solving skills.
Money management: As children grow older, parents can encourage them to manage small amounts of money, like allowance or earnings from small jobs. This empowers them and provides opportunities for them to make decisions about spending, saving, and sharing, teaching them the value of money and important financial skills.

As for what we do with our child, here it is. We do a $6 allowance every week since he’s six years old. The breakdown is as follows:

$1 for sharing
$2 for saving
$3 for smart spending

Sharing and saving are mandatory, but if he wants to put another dollar from smart spending into another jar, I’m perfectly happy with that. This may happen if your child is saving for a specific goal and it may help get to the goal much faster.

This $6 allowance system gives us the chance to have meaningful, money smart conversations with our son. That alone is worth more than anything else $6 can buy. It provides great questions and the start of a fantastic money smart foundation. It also empowers him to make his own money decisions, and money mistakes. We’d much rather him make a $50 mistake as a 6 year old than a $5000 mistake as a 26 year old. The parents that I’ve read about or listened to that do an allowance system like this one tend to save money because they realized they were spending absurd amounts on their kids. So believe it or not, you may actually save money starting something like this. A big bonus to a system like this is that it creates a more minimalistic child who appreciates the items they get as gifts or items they purchase themselves. The environmental impact of this is also much better and can’t be ignored, which is simply an added bonus.

Another thing you’ll find after empowering your child is that they are better stewards of their money instead of yours. The choices they make with their own money are often less impulsive in the long-term. Whereas with your money, they often have no problem spending it as fast as they get it.

The Controversy

What I’m about to write is what people may not like about our allowance system. But hear me out. We absolutely don’t tie it to chores. I’m not saying our son doesn’t do chores, I’m just saying we don’t tie the allowance to chores. If we were to not give him allowance because he refused to do chores, that is the start of a negative relationship with money that we strongly want to avoid. There’s already too much negativity out there surrounding money.

When it comes to chores, since he’s part of this family, he’s expected to do certain things in our home. Some of those chores include putting away the dishes, cleaning up his toys and cleaning up his room. In the instance of a refusal to do chores, there are other ways to get your child to do them which is far more beneficial than penalizing your child by taking away learning tool, such as their allowance or even a book.

Fun Fact: The best time to talk to your child about money is at night, laying in their bed with them, when they will literally discuss anything with you if it means staying up an extra 10 minutes.

Core Principles

If you introduce an allowance program, there are certain rules you’ll want to create for your children too. Some examples of some rules we implemented are that we will always pay for books. We of course will also pay for any needs he has, however, he can cover the wants. An example of another rule would be if we all go for ice cream, we’ll pay. But if he wants ice cream but we weren’t planning on going, then he can cover it with his smart spend. It’s important to create some rules to follow to stay on track and to help teach these skills.

In addition, we follow these core principles for raising our money smart child:

Saving for goals
Making smart money choices
Distinguishing between needs and wants
Encouragement of great discussions around money
The practice of delayed gratification

The Jar System

Smart Spend Jar – This jar is for day-to-day purchases and for any wants. If we are at the mall and he wants a Lego set he sees, he has to make the choice if he wants to spend his smart spend money on it and this process also requires him to determine if he can even afford it. If he can’t, it may turn into a goal that will be from the Savings Jar.

Savings Jar – The savings jar is self-explanatory but we have a few rules with it. The idea is to have a goal in mind for something he may be saving for. If he has a current goal, we print out a picture of what it is, put it on the front of it to visualize the goal and promote saving for it. If they are saving for no specific goal, they may quickly pile up a decent savings, which of course is also encouraged.

Let’s say our son saves up $100 and sees a toy he wants for $100. We have a 3 week waiting period before he can purchase that item. One week if it’s over $50. This helps fight any instant regret and it will truly test if he does really want the item. This is one of the many ways you can teach your child about one of the core principles: delayed gratification. This is a core principle that we likely can all agree that many adults need to practice as well in our instant gratification society.

Sharing Jar – When it comes to the sharing jar, it’s also self-explanatory. The money in this jar will go to any charity of your child’s choosing. Could be a school fundraiser, Salvation Army, people who are homeless, an animal shelter, whatever they choose.

Other Ways to Earn

Some other ways to earn that we’ve introduced have been if there are any toys he no longer wants, he can choose to sell those (which is us listing the item on marketplace). As he gets older, we will introduce cash jobs as well. Some examples could be: cleaning up after the dog, cutting the grass or even cleaning the cars. This teaches work ethic and will also build on the existing strong money management skills.

Variations

It’s important to note that every kid is different: some are spenders and some are savers. If our child is a spender, I’d give him more of an incentive to save. Say for every dollar he saves, I’d give him a quarter. This would entice him to save more and spend less. If he is a saver, I’d encourage him to spend a bit more. Being a saver isn’t a bad thing of course, but knowing how to spend and having your child spend to make spending mistakes at a young age is part of the goal here.

Additional Points

It can be a tough practice for the parents as well. Changing the discussions, habits and current behaviours isn’t easy at all. For instance we avoid saying things such as “we can’t afford it”. Instead we’d say something like “that doesn’t align with our priorities”. If we say we can’t afford it, it’ll seem hypocritical if we just bought a trip or some other large purchase.

Even at a very young age, we can start planting seeds about work ethic and money. For instance, if your child is sad to see you have to go to work, explain exactly what work provides. Simply complaining will only put a negative connotation on work and could be remembered later in their life.

Another great thing to teach them is prioritization and trade-offs. Say they had a picture of a goal they were saving towards, then were quickly distracted by something else. This is a great teachable moment. “If you buy this $50 Lego set, that will delay the chance to save up for your original goal of the $100 train set”. This is the kind of dialogue you want to start to get their brains thinking hard about their own financial decisions and the many trade-offs and goals they’ll have in their future.

Conclusion

The principles and skills that a simple allowance can provide is priceless, even if it does have a literal price. The lessons of empowerment, work ethic, smart spending, goal setting, saving and sharing are well worth the small price of an allowance. Even if you financially can’t provide an allowance that matches their age, any amount to get the conversation started is the idea.

If you don’t talk to your kids about money, someone or something else will. This could be one of the many advertisements they see telling them to buy something or it could be someone with terrible money habits who doesn’t spend intentionally. If they aren’t mentally prepared, they won’t be ready. The habits formed in childhood are carried over to adulthood so now is the time to start money lessons.

I can tell you from experience, helping your child figure out their priorities, values and goals and aligning their spending with those is such an awesome achievement. In the end, teaching children the value of allowance through the three jar system is not just about money, but about nurturing a compassionate and financially responsible future generation.

* Special thanks to the book “Art of Allowance” by John Lanza for providing an excellent blueprint to raising a money smart child.