The Money Savvy Pig and My Son’s Allowance

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:

Money Savvy Pig

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.

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  1. Thank you again for another wonderful post. I have a 2 1/2 year old son, and I often wonder about the best way to teach him to be “money” responsible. This is something my parents did not teach me and I’m just now learning at age 34. The Money Savvy Pig is the tool I’ve been looking for!

  2. Drew says:

    For the invest part. Maybe once a year (or every quarter) you can take out all the money in there and have him help you count it. And then give him a percentage return. That way he has a more tangible understanding of how his investment grows. He can see “Hey, I left this money sit for a little while and now I’m getting an extra $5 for nothing!” At least until it can be put into the custodial account.

  3. gmv says:

    The Money Savvy Pig approach sounds brilliant! Good luck with it!

    One comment — it’ll work well for even ages because you’ll have equal numbers of coins to distribute, but what will you do during odd years when you don’t? You might have to give part in dollars and part in quarters. But I like giving the Sacagawea dollars, I do. :)

    age 4 – $8; $2 for each
    age 5 – $10; ?? $2.50 each
    age 6 – $12; $3 for each

    etc. Unless I misunderstood your intention.

    Best of luck — I wish my parents had had your foresight.

  4. These are a cute moneybox, and help teach splitting your pocket money into these four key areas, but you can still teach young kids more about money than just the basics.

    My six year old has two money boxes – each week he gets $3.00 pocket money which gets put into the two boxes. One box gets deposited into his bank savings account (along with money gifts for birthday, christmas etc., any money he earns busking etc.) The other box gets deposited into his school banking account (it’s a bit redundant having two savings accounts to bank, but there are no fees on the kids accounts, and the school one lets him participate in this school activity).

    But he also has some stocks that I bought him when he was born – he enjoys seeing mail arrive with his name on it, and we discuss the dividend statements (what a company is, what stocks and dividends are), and he likes filing away the DRP statements and watching the number of shares he owns slowly build up. He can relate to the stocks he has (one bank and one insurance company) as he can see the company signage on the hi-rise office towers as he drive over the Sydney Harbour bridge, and see the bank branches when we go shopping.

    He also did a paper round for while (with a lot of help from dad), and watched me do his tax return on the PC and helped file statements for his retirement savings account.

    I’m sure he doesn’t understand a lot of this in any great detail yet, but you’d be amazed at how much they can pick up and understand. It also means that he can join in family conversations about investing, interest rates, dividends, taxes and so on, and will ask questions about the bits that interest him.

    Although handling cash is OK, he’s actually much more interested in using the PC to access accounts online, and file away the paperwork. I think that one of the keys to sucessful investing and money management is to have a logical, unemotional approach to finances. So it is good to enjoy dealing with money as numbers on a computer screen or dividend statement, more than just get a visceral connection to physical coinage.

    ps. He also enjoys playing Junior Monopoly – this is also a great way to learn a bit more about finances.

  5. Chris says:

    I wish I had you for a father when I was younger. I turned 18 this year and my dad hasn’t taught me the first thing about personal finance, but that’s where you’ve come in as well as many other PF bloggers. I would like to thank you, from the bottom of my heart, for leading me away from the path of my ever-consuming father and onto the journey of financial savvy. Fortunately, I’ve still got time on my side.

  6. Eve says:

    Heifer International (www.heifer.org) is a great charity for kids to donate to. Kids can visualize and understand how the animal they donate to a family helps the family provide for themselves by giving milk or wool or whatever it may be, depending on what animal. Also, your son wouldn’t necessarily have to wait until the end of the year to make a significant donation. It would take less than four months for your future 4-year-old to accumulate enough to buy a hive of bees plus training in beekeeping for a family.

  7. Great post Trent. Among your best work.

    FT

  8. karla (threadbndr) says:

    I’d start the invest one with a savings account with a regular deposit. That way he’ll get the idea that his ‘emergency stash’ isn’t for spending. That savings account will be the start of his REAL efund down the road, which is really the very foundation investment.

    Eventually, of course, the ‘invest’ stash will have to be in other investments. My dad started me out with savings bonds. At the time, there were ‘bond stamps’ that were sold at school. You bought them with quarters and filled up a coupon book, then traded the book in for a $25 face value bond. The last one of mine just hit the ‘no more interest’ mark LOL.

  9. JJG says:

    Regarding the allowance not being cleanly divisible by 4, it may prove to be an advantage, since decisions will have to be made to keep the 4 ideas balanced. It can be done, but there has to be a rotation.

    I’m not sure if a 25% across the board chop is really the savvy way to go. Maybe for a start, but then the child would have to come up with a reason to change it in the future. Maybe you could make your own bank out of plexiglass. Then you could make the ratios a little more realistic.

    25% for charity is a bit much, really. Nice if you can do it, but Oprah doesn’t even give 25%. And don’t forget chruch donations in that as well, but that depends on individual faith. Tithing is important to a lot of people

  10. Sarah says:

    This is a great idea, but you can do it without the actual pig. My sister actually does this with her three kids, and they have just labeled individual jars for saving, giving and spending. They’ve talked with the kids about percentages, in understandable terms, and each week the kids get their allowance in dimes. They sit down together as a family and talk through where all the dimes should go. This allows them to practice their counting and have open conversations about money from an early age. Then, once they have helped the kids divide their money into piles, the kids each put their own money in each jar. This really helps them to understand from an early age that it is their responsibility to make these decisions with their money.

  11. martha in mobile says:

    I’ve been doing exactly this with my daughter for the past 7 years (she’s 10 now). She gets $6.75/week — $5.75 for spend/intermediate savings; $0.50 charity (she chooses at the end of the year where it goes — Heifer is a big favorite at our house); $0.50 for long term savings. Every week she counts up all her money in all her accounts. When she hits $100 in long term savings (she puts some of her “windfall” money in there, so it happens at least once per year) we go to the bank and purchase a $100 I-bond. I photocopy the bond and put the copy in her long-term savings jar so she can use it in her calculations. Will she avoid the financial messes I got myself into? Who knows…but at least she knows what she should be doing.

  12. Clark says:

    I think a good “charity” would be any of the micro-loan sites like Kiva.org. That will teach “solidarity, not charity” and it will give your child something to be proud of while also helping him to understand the concepts of entrepreneurial behavior and loans. Not to mention it will broaden your child’s horizon to the existence of people outside your immediate community and the united states. It has a little more depth on the conceptual level in comparison to just writing a check to a group where you wont have the opportunity to see the impact on a tangible level.

  13. Prabu says:

    Trent,
    Can we have your thoughts as comments to the comments?

  14. julia roberts says:

    hi…where can i purhase the savvy money box..im in australia..thanks

  15. Michelle says:

    I thought you might like this idea – I loved the idea of the money savvy pig, but couldn’t afford to get one, so my daughter (4) and I talked it over for a bit and tossed some ideas around and came up with a castle, we’ve made it out of a gift box and toilet roll inserts, painted it pink and purple and decorated it including little flags on top of each turret for the different categories. I have a pic if you’re interested. Total cost was less than $8 (NZ) and she loves it because she did a lot of the work on it.

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