How To Save and Spend

Tina and her husband are trying to teach their kids how to manage their money. Tina disagrees with her husband on how the kids should save and spend their money. Dave pulls out his referee whistle to help.

QUESTION: Tina in Lake Charles and her husband are trying to teach their kids how to manage their money. They have an 8-year-old and a 4-year-old. The kids are excited about the commission charts. However, Tina disagrees with her husband on how the kids should save and spend their money. Dave pulls out his referee whistle to help.

ANSWER: The older they get, the more detailed they become. When you start with a 4-year-old, it’s just very simple and very clean. For instance, have three clear banks—one is a giving bank, one is a saving and one is a spending. That’s probably too baby-ish for the 8-year-old, but it’s perfect for the 4-year-old because you get to see the money grow when they stick it in those banks.

In that case, you probably don’t have to have a big, elaborate savings goal. We are just trying to say that saving is important, so we’re doing some saving.

Later on when they express interest in buying an item, we can start talking to them about that being the goal. The 8-year-old needs to have a goal. When our kids were 8, that’s when we started talking to them about their savings being for their car. That was our decision at our place, you can decide what yours is. Some parents want the kid to put money away for college. In our case, we paid for college, not the kid.

We did want them to learn to save, so we used the car as the catalyst to have that teachable moment. In that case, we were able to financially match them for their car. We call that 401-DAVE. We just told them they are saving for their car, and all the savings went into that.

You let spending build up if you want to buy a toy. It’s a little bit of saving, but it’s a real short-term thing. Use your spending envelope if you want to buy a toy or a game, that kind of stuff. Use the savings for some big goal. Savings just disappears; it’s just gone. Designate the savings amount that they have to do. That should be your choice and not his, but with lots of explanation.

We want him to know why he’s saving. In the case of the 4-year-old, you’re just trying to teach him how to save money. You don’t have to have a lot of explanation. But with the 8-year-old, you’re trying to build his muscles. You want him to be able to do several things when you go out there in the world, and that’s why we want you to get good grades and brush your teeth and those kinds of things.

But we also want him to be a giver, a wise spender, and we want you to know how to set a goal and save for it. So you walk with him and teach him and help him with those things and guide him along the way. Just talk to him about it but don’t dictate.

Would you dictate whether or not they brush their teeth? Yes, and 30 seconds isn’t long enough. Part of the parenting is to give a “why” with it; it’s not just a rule. The reason you are doing this is to grow him as a person.

Now, you will hit a wall about six or nine months out when their excitement wears off. You’ll have to be the enforcer along the way because we want you to build these muscles because people who do not teach their children how to handle money have their children living in their basement. You don’t want your children in your basement at 31 years old.