Lately, I’ve been thinking a lot about how to teach my son about money. I’ve looked at a lot of different resources that could teach my son about money gradually as he gets older. I have four basic criteria that I’m looking for:
It has to be visual. At first, I want my child to be able to directly see his money as it grows. Money on a savings account balance sheet or on a computer screen has little visceral impact, but a coin or a bill in hand makes a big difference.
It has to reflect the fundamentals of budgeting. I want my son to understand that money can easily be compartmentalized: you have some you can spend right now, you have some that you save for a future goal, and you have some that you invest to watch your money grow.
It has to reflect the value of charity. I also want my child to understand what charity is and why it is important. One of the most powerful things I did in my life was when I met a kid my own age with muscular dystrophy. I felt really bad for his plight and thought it was very unfair that he had this disease, so I saved up my money and donated more than $100 to the MDA telethon that year. They read my name off on the air and I remember sitting there and thinking to myself that the money I donated might help cure that kid. So, I want my child to save some money to a charitable cause.
It has to open the door to a lot of discussions about money and its uses. The teaching tool must be open-ended, allowing my son and I to have many conversations about what you do with money, how it earns interest, why you save, how people get rich, and so forth.
I think I finally found the right tool for this. It’s called the Money Savvy Pig. Here’s a picture of it for you visual types:
As you can see, it’s a piggy bank that’s divided into four quadrants: Spend (money you can spend now on whatever you wish), Save (money you’re saving for a bigger purchase), Invest (money you’re going to put towards investments), and Donate (money you’re going to donate to a charity). Each quadrant is accessible through one of the pig’s feet.
When my son turns four, I’m going to start giving him an allowance equal to two dollars times his age. So, he’ll get an $8 allowance. I’ll continue this allowance until his sixteenth birthday (at which point he’ll either get a job or have a better investment portfolio than me). I’ll give him this allowance in Sacagawea dollars at first so he can see them clearly, and right in front of him I’ll put two in each of the pieces of the pig.
I’ll just keep doing this for a while, but I’ll let him take money out of the “spend” portion so he can have some pocket money if he goes to the store or to a friend’s house. The idea is that he’ll see each week that the pile of coins is getting bigger and bigger.
For the other parts, I’ll let him watch them build up over time and think about what’s in each of them. The next one I’ll introduce is the “save” part, where he can identify a more expensive item that he wants, and we take out that money and go buy it – and then start over. The other pieces will keep building up.
At the end of the first full year with the bank, I’ll pop open the “giving” part and help him pick out a charity around Christmastime. I’ll spend some time introducing him to some charities that I like and I’ll point out any charities that we can both notice. Then, I’ll let him pick one and we’ll take the money and donate it. The donation will be entirely in his name and any recognition will go to him.
What about the “invest” part? I want the “invest” portion to build up for a few years right in front of his eyes. Once he reaches a point that he can comprehend what stocks and bonds are and how they work, we will take this money and open a custodial ETrade account with that as an initial deposit – and let him learn about investing at his own pace. I’m not entirely sure this is the best way to go, but it seems right to me – I want him to see that an investment portfolio starts by saving up your own money and that’s how people become rich, not by having money given to them.
Sounds heady? I really do not want my child to ever have the misunderstandings about money that I had when I was younger. For me, it was simply that no one ever really bothered to teach me about this stuff – or if they did, they never worked hand in hand with me with real examples.