I just had a nice conversation with a friend who is implementing the Share, Save & Spend Smart Money Mammals allowance system for his six- and eight-year-old kids. You can see my previous post for more detail about how to set this up. Anyhow, he found our system to be sufficiently clear except for teaching the concept of longer-term or “rainy day” savings.
I told him that the longer-term saving could wait a bit and that Save money was best put into the Save jar. I suggested he work with his kids to set a goal that they could achieve in a relatively short amount of time: a long enough time to get a feel for the power of delayed gratification but not too long to be frustrating.
Saving for something over a period of time (albeit a short one) is a powerful lesson for kids (well, actually, anyone). I suggested that he encourage them to save for something over two to three months for their first goal. Then I advised him to have his kids purchase the items they saved for using the funds in the Save jar. It’s important to give them ownership of the process.
While the initial allowance payment would be focused on goals, I told him to eventually (within three to six months) open up an account for his kids for even longer-term savings. This would give them some time to get used to the allowance process, save for a goal or two and to just generally get comfortable with handling money and making money choices (including some smart ones and maybe some not-so-smart ones).
As a side note, when it was time to open an account for our kids, my wife, being the Money Mammal that she is, found a credit union that paid seven percent on the first $500 of deposits. Nice! This was a meaningful interest rate that helped convince my kids that longer-term savings ARE worthwhile. It also may be helpful to point out that most of the money in my kids’ accounts (they are eight and ten) has come from gifts, although they’ve made a few small deposits from their Save jars from time to time. So they use both the account AND the Save jar, even to this day.
Longer-term savings and the Save jar, my two cents for this Friday.
John