Tell your kids about the three buckets of money

For the purposes of helping your kids understand where money comes from, let’s sort money ownership into three buckets: personal, family, and government.

Personal money. In general, kids get money from their family. They don’t have to have a job, report their income to the government or pay taxes. Children have a lot of freedom with their money with few, if any, obligations. A child’s first money experience is “all about me.”  When children have money they usually spend it on what they want and that’s that.

Family money. Reality sets in with being an adult earning a living. The “spend for me” theory doesn’t work quite as well when families have to pay for essentials like food, shelter, et al. Keeping track of income and expenses becomes important, especially around tax filing time.

Government money. The government doesn’t have to have a job; it simply takes money from everyone who has taxable property, earnings, or investments. Decisions about how to use your money are made by the local, state and national officials you elect. Unfortunately, our government is not very good at managing money.

However, as parents you can help your kids learn about money management not. Knowing how to manage money gives individuals the ability to control what they do with it. We often talk about, “living within one’s means”, “making every dollar count,” and “spend less than you take in.” These maxims are the essence of money management, defined as having the ability to use one’s financial resources wisely.

To prepare your children for the future, you can create a child-size version of real-life money management and responsibility. By using a system like The No-Cash Allowance you place control of cash and non-cash money in the hands of your child while requiring them to meet their responsibilities, e.g. pay their bills.

You can help your children learn the art of compromise and negotiating spending decisions by building these opportunities into their allowance and earning system. By requiring your kids to “pay their bills” you help instill the self-discipline necessary to make reasoned spending decisions

Kids need to know that money is a limited resource and there are responsibilities to be met. Only parents can provide the resource (money) and the guidelines (responsibility.) By doing so parents can help their children understand that one has to live within one’s means, whether that be as a child, adult, or elected government official.

Your children are learning spending habits that will stay with them as they grow up to be the leaders of tomorrow. Perhaps your children will be the ones making  “government spending decisions” that are truly wise and timely.

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