“Working to help parents raise money-smart kids.”
Hello, friends!
This week’s three ideas feature two ideas for younger children and one idea for older kids.
Of course, I’m always hopeful you can find nuggets of wisdom within any idea that will assist you on your family’s money-smart journey.
— 1 —
An Allowance Isn’t Always Necessary: During an online chat last week, a colleague (and friend) confessed to not having set up an allowance for her kids. Because we were discussing how to bring The Art of Allowance Project program to more families, I could sense that she was feeling guilty that she wasn’t “following the program.”
But then she explained that she’d read her kids my picture book, Joe the Monkey Saves for a Goal, when they were younger. And she’d even set up our three-jar system: Share, Save and Spend Smart.
This colleague then explained why she wasn’t giving her children a weekly allowance: She felt she didn’t have to give them one because their grandparents were so generous about giving money on a regular basis.
When I told her I didn’t see anything wrong with her system, she was surprised.
As I explained to her, the purpose of an allowance isn’t to give an allowance. Rather, the purpose of an allowance is to provide our kids with regular amounts of money with which they can practice. Thanks to these regular distributions, often but not always in the form of an allowance, we help teach our kids the core money-smart skills of making smart money choices, distinguishing between needs and wants and setting and saving for goals.
And while I wouldn’t advise a family to set up a system in this way, I don’t think my colleague needs to feel guilty. She’s actively working to raise money-smart kids. And that’s what matters!
— 2 —
A Two-for-One Conversation: During this same conversation, another colleague (also a friend) said she was grappling with starting an allowance for her daughter. Her husband has his own business, and she runs a multi-state organization. So they both think entrepreneurially.
As you know, I’ve spoken with a lot of entrepreneurs lately on The Art of Allowance Podcast, and many of them bristle at the idea of an allowance. They often want their kids to earn money, while also acknowledging that children shouldn’t be paid for doing basic chores around the house.
If you’ve read this newsletter for any length of time, then you can probably guess how I advised my friend. I think the message bears repeating: An allowance must be intentional, or else it is just a giveaway. It’s the “giveaway” notion that I think hangs up a lot of entrepreneurs or any parent grappling with whether or not to begin an allowance.
Which is why you need to make an allowance’s purpose very clear to your kids.
You can start by offering some form of this explanation: “I am setting up this weekly allowance to help you learn how to use money. I am going to be your guide and will do my best to answer any questions you have.” Keep it simple!
And if you decide you’d like to “nudge” your kids towards behaviors like I discuss in my book, then you can add, “I’m going to give you five dollars each week. You’ll put one dollar in your Save jar for bigger things you might want. You’ll put one dollar into your Share jar to give to others. And the rest, three dollars, will go into your Spend Smart jar.”
You don’t need to provide any more detail than that. Rather than try to anticipate all your kids’ questions, keep your message simple by repeating some form of the above for a few weeks. They’ll almost certainly begin to ask questions as time rolls along. For example, when they inevitably beg for something at the store for which they don’t have enough money, you can direct them to the Save jar when you get home and help them save for a goal.
And if you need a little kick to get things started, our Allowance Launcher can help.
— 3 —
Professional or Amateur: There’s a reason why people call Warren Buffet “The Oracle of Omaha.” In this short video, Buffett sagely advises a young, nervous Tim Ferriss. Ferriss was enjoying his first publishing success and wanted to know how he should invest his earnings.
When Ferriss finishes his rambling question, Buffett provides simple, straightforward advice: “I’d probably have it all in a very low-cost [equity] index fund.”
The video is worth a watch and a family discussion. I shared Buffett’s advice with my daughter last night at dinner, adding another key knowledge nugget from the clip: It’s important to recognize that unless you’re a professional investor, you’re an amateur.
Here’s another way to think about it. What would happen if:
👉🏻 You tried to race Mikaela Shiffrin down a giant slalom hill?
👉🏻 You suited up to tackle 6’3″, 247-pound running back Derrick Henry?
👉🏻 You ran into a burning building with a garden hose?
You would almost certainly get seriously hurt. Or worse.
For most of us, “boring investing” while leveraging the power of time is the wiser choice. (And the advice we should probably share with our kids.) Because while I repeatedly emphasize the importance of learning through experience in this newsletter, investing’s power comes with time. It took me over two decades to streamline virtually all my investing into low-cost index funds, in part because I stubbornly refused to grasp the idea that I am an amateur investor.
When it comes to investing, we can at least try to help our kids learn from the experience of experts like “The Oracle of Omaha.”
Until next week, 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.
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