As soon as my son was born, my husband and I opened a savings account for him. We felt this was important because we received many cash gifts for him, and we wanted to keep this money separate from ours; after all it’s HIS money. He is four now, and since his birth we have deposited all of his cash and checks into this account, and it’s grown quite a bit (far more than mine!). Once he was old enough to begin to understand the concept of money, we introduced him to what we call the 50/40/10 rule.
Quite simply, 50% of all the money he receives (either earned or gifted) must go into a savings account. Period. No questions asked. His age prevents him from completely grasping the concept of savings, but I know that repeated reiteration of just the word “savings” will help integrate it into his vocabulary and hopefully will become standard practice for him as he gets older. When he becomes an adult maybe the percentage will change, but it’s my goal to teach him that he has to incorporate savings into his overall money plan.
The 40% is what we call the discretionary piece. Though D is still too young to need discretionary spending, I believe when he gets older, 40% of what he either earns or is given should be determined by him. Maybe he will choose to save that money (great!) or maybe he’ll use it to buy something he wants. Either way, I am trying to equip him with the right mentality that he shouldn’t just spend everything he receives as a gift. Half of it has to be saved, and some of can be used for fun.
Lastly comes the 10% and this is another non-negotiable. This portion of his money must be given to charity, and it’s with this part that we really get to have fun. My husband and I kept track throughout 2012 and at the end of the year we told D how much he had to give. Then we asked him to choose three charities to whom he wanted to contribute. He asked us for suggestions, and we gave him some based on both his and our interests. It was really warming to see him ask questions about each charity – about what they did and who they helped. It’s so important to me that D realize that there are many who are less fortunate in this world and that it’s up to him and his generation to step up and make a change. At his age, contributing money toward these causes is how he can help.
In the end D said that he wanted to help animals so together we chose the San Francisco SPCA, that he wanted to give money to our Church, and that he wanted to help the Tim Tebow Foundation. * It’s important to let your child choose for themselves to whom they want to give because it teaches them that they have a choice over where their money will be spent, even if not over the amount.
Remember that many of these values that you instill in your child from an early age will stay with them their whole lives, so start talking about money now!
*Note: The charities mentioned in this blog post are not endorsed by The Online 401(k). They represent the choices made by this blogger’s child.