GUEST ARTICLE: “At a loss to begin showing your kids how to handle money? I was too which lead me to this easy system of four money boxes. By dividing their pocket money, my kids understand how to apply their income to multiple goals. Our four money boxes are: invest, save, crazy and give.”
As a kid I remember only bits and pieces about money, that mysterious stuff that seemed to occupy much of the grownups’ attention. There were money boxes from the bank, sturdy tins or plastic figurines that would swallow my money never to be seen again.
Until, that is, I’d take a knife to enlarge the coin slot and spend ages shaking it around to retrieve a few coins for a bag of sweets.
While I had, from time to time, money from birthday presents or doing chores or as a reward for good schoolwork, no time was spent on showing me how to manage it.
I’d be willing to bet that most of us had a similar upbringing. “Easy come, easy go!” or “Money is there to be spent” were some of the sayings I remember from my childhood, perhaps you’ll recognise these (or similar variants) from yours.
Ever since my own kids came along I was certain I would teach them about money from an early age. The only problem was I really didn’t know where to start. Many people who teach personal finance say it all begins with a budget.
Personally I’m not a big fan, possibly for irrational reasons, however a budget is clearly not going to work well with the average six year old just starting at school!
Divide Children’s Pocket Money into 4 Money Boxes
One technique that really caught my eye is the “envelope method” – where you physically set aside envelopes for your outgoings and fill them with your income, ensuring there’s always money available for each expense.
As a flexible system, I feel the envelope method lends itself to easing your way in to managing your money. That then served as inspiration for the four money boxes system : Invest, Save, Crazy, Give. True, ‘Crazy’ isn’t a verb, if you feel strongly enough you can always label it ‘Spend’. How are these four money boxes used?
Definition: “expend money with the expectation of achieving a profit”
Even if you don’t yet have a good investment system, developing the habit of long-term savings is one of the most valuable lessons you can pass on.
My kids have an online high-interest account that this money goes into, via a student passbook account. Every month or so we visit the branch and they deposit their investing money over the counter, de-mystifying the banking experience.
When that money builds up, they’ll start buying index funds. In the meantime, we sweep the passbook account online into the kids’ high interest account – let them watch (or even click) here as well.
Definition: “keep and store up for future use”
Delayed gratification is an exercise of will – you could brush your teeth with your off hand to improve your will or you can save up money to buy things instead of using credit.
You will have to resist the pester-power that will be applied, however as another critical life skill saving up for things it a biggie. This is the weakest past of or system because we don’t have a strong mechanism for deciding on these goals and sticking to them. Suggestions welcome!
Definition: “extremely enthusiastic” (Spend “pay out money in buying goods or services”)
Lest you think this is all work and no fun, the crazy box is for pure spending. On just about anything (we usually say “except knives & drugs!”) In practice this ends up being spent at the school canteen, on trading cards or stickers. What matters is that this money is spent each week, giving the kids real experience at physically handling money, making purchases and counting their change.
Definition: “freely transfer the possession of something to someone”
In the first version of this system the Give box was missing. Somehow I’d left the idea of sharing what we have with others as perhaps too hard for the kids to understand. How silly of me! At our school, which I daresay is typical, every few weeks is an opportunity to give charitably to others.
Whether it be raising money for a child sponsored through World Vision or any of a myriad of other causes, the kids have a chance to dress up for a day, colour their hair, wear jeans, buy a bandanna, a red nose and on it goes. They understand giving to others less fortunate, and when it comes from their own pocket money they really feel that they are helping (rather than just handing over Mum or Dad’s cash!)
So that’s the four money boxes and how I use them at home. The question of how much pocket money is enough for another post, however the ratios of the boxes are worth mentioning.
For example, with $7 pocket money we would put $2.50 into the Invest & Save boxes, $1.50 into Crazy and $0.50 into Give. That means $4 out of $7 is spent now or on something down the track, while putting something towards your long term prospects and having a little to share with others.
The ratios change a little to keep the change sensible, with around 35-38% each into Invest & Save, 20% to Crazy and 6-10% to Give. This works well for the pre-teen. As their spending increases I plan to drop the Invest and Save ratios down to as low as 20%, boosting the Crazy box up to fund a teenage lifestyle.
Perhaps now you have the inspiration to begin teaching your kids about managing their money? Will you start with envelopes or bank money boxes I wonder? Good luck!
This guest technology review has been written by my friend Matthew. Husband, father of 2, Internet generalist, Scout Leader and life hacker who is passionate about learning and sharing ways to save and invest for kids, Matthew is looking for ways to apply old wisdom and new technology in a quest to help people create their own Golden Goose“.
Smartypig Australia kindly donated a $110 giftcard for me to give to the next guest author who wrote 2 articles about saving money, I will give this card to Matthew.
If you’re a blogger or an expert about a topic I cover on this blog I encourage you to contact me and I’ll consider publishing your guest article here including generous attribution and back links back to your website as thanks for your contribution