“Working to help parents raise money-smart kids.”
Hello, friends!
We talk a lot about the three core money-smart skills here at The Art of Allowance Project, so this week’s “3 Ideas to Share & Save” will examine each skill and why it matters to us.
From my book, now available on Amazon, The Art of Allowance: A Short, Practical Guide to Raising Money-Smart, Money-Empowered Kids, the three skills are: distinguishing between needs and wants, setting and saving for goals and making smart money choices.
— 1 —
What Do You Want?: One could argue that answering this question is our life’s quest. While the question seems simple enough, it can be surprisingly difficult to answer because we (and our kids) are awash in a world of wants. Identifying those wants that matter the most to us can be a challenge.
We typically open up the “needs versus wants” conversation by contrasting wants against the basic needs of shelter, clothing and food. As a reader of this newsletter, odds are you’re beyond survival mode. Since our basic needs are covered, what’s really happening is that our kids are distinguishing amongst a bunch of wants.
This is where “needlets” can help add value to the conversations you are having with your kids.
You can’t paint a canvas without a brush. The brush is a needlet. Sure, you’ll survive without it, but your painting will suffer.
Now, you can talk with your kids about distinguishing between wants and needlets.
In the practice of teaching your kids money-smarts, you might pay for a needlet like a soccer ball when your kid joins a team. But if he wants to upgrade to that signed Inter Miami ball, you can tell him that while you’ll cover the needlet, he’ll have to pony up the balance for Messi’s signature. ⚽️
— 2 —
An Underrated Skill: The ability to make money-smart choices is underrated. We make many, many unconscious choices throughout the day. While some benefit us, others don’t.
Not calculating a purchase’s opportunity cost, or forgoing its future value, is something we all do regularly.
At the same time, something as simple as buying coffee with a friend can bring us tremendous joy. Here, the opportunity cost of the coffee might be worth the price we pay.
And, of course, we can make unconscious choices actually work for us by setting up a system to automatically deduct money from our paychecks into our savings accounts.
The goal is to simply be more conscious of our money choices.
This is one reason I advocate starting our kids with a cash allowance. It forces weekly conscious physical choices when our kids place the allowance they receive into their Share, Save and Spend Smart jars. These physical choices help emphasize to our kids the importance of “paying ourselves first” or “giving to others” by putting money into their Save and Share jars, respectively.
These conscious choice experiences also help build your arsenal of conversation reference points for later learning with your kids, when the opportunity costs of their money choices are materially more important.
As I discussed with Bobbi Rebell in a podcast episode, when your kids grow up and get their first substantial paychecks, you’ve already primed them for conversations in which you “nudge” them (or as they might say, “nag” them 🙄) to contribute to a 401(k) or max out a company match.
— 3 —
Savings Hero!: Setting and saving for goals is a key life skill, and your art of allowance program lends itself to teaching it.
When you set up an allowance, you create artificial scarcity, which then helps our kids learn to allocate resources. When your son heads to the store with you or sees something online that he wants (whether it’s a want or needlet 😉), he must learn to delay gratification by setting a goal if his allowance has not already been allocated to that item.
As I discussed with Chelsea Brennan in last week’s podcast, money in the bank is not the purpose of allowance. The purpose of an allowance is to teach our kids to learn to wield money like a tool. 🛠️
Of course, money in the bank is wonderful too. If your kids start to make money early, like Chelsea’s kids do from their home business, you can put that money away for later. The same goes for generous birthday checks. Give them a portion for their jars, and sock the rest away in an account for later use.
This has the added benefit of setting yourself up for a “hero moment.” They will be thrilled when you reveal how much they’ve accumulated in a few years. And, trust me, once you have teenagers, a well-timed parent “hero moment” might be sorely needed! 💪🏻
I think the best time to start teaching these skills is around four or five years old.
The next best time is today.
Whenever you begin, though, don’t forget to enjoy the journey!
John, Chief Mammal
P.S. Please consult with a financial or investment professional before engaging in any decisions that might affect your own financial well-being.
Like what you just read? You can sign up for the newsletter here.