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How To Teach Kids About Money

April 10, 2021 By: Sweet Frugal Life13 Comments

Object lesson to teach your child financial responsibility.

As parents, we all want our children to succeed in every aspect of life.  One of these hopes for success is wanting them to succeed financially.  I truly believe if we can learn how to teach kids to manage money teach our kids smart money skills when they are young, they will be much better off financially as adults.  I am excited to share this great object lesson to help you know how to teach kids about money.

We talk to our kids about money constantly.  We give them chores and an allowance to help them learn how to save, work and spend wisely.  But, I wanted to teach them a little more about the money world as adults.

I began brainstorming ideas and came up with a game plan that ended up having a greater impact than I ever could have imagined.

  • Related:  Teach Kids About Money With The Money Confident Kids Website

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Kids Money Object Lesson:  How to Teach Kids to About Money

To begin our money object lesson we announced to the kids that we were having a family meeting and that they all needed to come join us (cue groans).  I ignored their sour face expressions and got started with our plan.

Phase 1:  The Marshmallow Bank

We started the lesson with what I called “The Marshmallow Bank.”  The point of this was to teach the kids how money grows when invested over time.

First, I gave each of the kids 5 marshmallows.  I told them that those marshmallows were theirs to do whatever they wanted with.  But, if they wanted to put the marshmallows in the marshmallow bank the marshmallows might grow.  I reminded them that the more marshmallows they added to the bank, the more they would probably get in return.

My 12 year old and 9 year old decided to put all five of their marshmallows into the marshmallow bank.  However, my 5 year old chose to eat three of his marshmallows and put the other two into the bank.

The “bank” was in my closet.  We left them there while we moved onto Phase 2!

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Phase 2:    Real Life

For Phase 2 I really wanted to give my kids an understanding of exactly where mom and dad’s money goes each month and WHY we just can’t give them every.single.thing. they ask for!  I truly wanted to help them understand adult financial responsibilities.

To prepare for the lesson, I got enough cash to resemble how much money my husband earns in one month (I did this during the first of the month when I had a bunch of cash on hand from my cash envelopes).

I obviously didn’t get out the EXACT amount of money that my husband earned, instead we pretended that a quarter was $25, $1 was $100, $5 was $500, $10 was $1,000 and $20 was $2,000.

Next, I filled three bowls with snacks.  The first bowl had cheerios in it and a $50 sign, the next bowl had fruit snacks with a $100 sign on it and the last bowl had a few mini candy bars in it with a $500 sign.

I gave the kids all of the “money” that our family has to live off of for one month.  I explained that after they paid all of their monthly bills than they could use whatever money is left to go shopping at our “store.”

The kids were SO excited about their money and the possibility to get those candy bars.  All of those bills looked like a gigantic wad of a sum to those three young kids.  They could not wait to buy out the entire store!

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And then the bills began…

Now for the bills….(why must there always be bills to pay?!?!).

We listed off every bill that we have to pay each month and how much that bill cost us.  As we listed off each bill, the kids had to pay us from the money stash we had previously given them.

We included everything!  They had to pay for life insurance, car insurance, retirement savings, college savings, sports and piano lessons.  They paid for electricity, groceries, car repairs, and a few date nights.

We had them put money into their emergency savings account.  If it was on our real budget, the kids saved for it.  As the huge wad of cash slowly dwindled the looks on the kids faces kept dropping and dropping.

Once the bills were all done being paid my daughter exclaimed, “But where did all of our money go?!?!”  The kids had about $10 leftover, an equivalent of $1000.  Not enough to buy each of them one of the coveted candy bars.  They had to settle for a few fruits snacks and cheerios.

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Phase 3:  The Lesson

At first the kids were a little upset.  They were asking questions like, “So does this mean we don’t have any money?!?!”  and “I don’t understand where the money went.”

We explained to them that we do have money.  We have enough to pay for everything in our budget, everything that they had to pay for.  We have enough for the soccer camp, the piano lessons, food on our tables, the necessary clothing and occasional fun family activity.

But, we do not have enough money for ALL the things.  We talked about why and how we make a budget each month, how some months we might budget for a fun family activity and another month we will budget for new school clothes.

As the conversation continued I could see the understanding start to set in their eyes.  They began to realize the importance of a budget and why they are told no to some of the things they ask for.  They learned the importance of saving money each month and budgeting for the many bills that come with being an adult.

Phase 4:  Investments

Now, it was time to check how our investments were doing in the “marshmallow bank.”  When I went to go get the marshmallows I tripled the amount of marshmallows each of the kids had in their bowl.

My 12 and 9 year old ended up with 15 marshmallows and my 5 year old had 6 marshmallows.  My 5 year old was a little disappointed when he saw how little marshmallows he had compared to his two older sisters.

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This gave us the perfect moment to explain to the kids about investments, and how, if done wisely your money will grow.  We demonstrated how the more money you invest, the more money you will earn in return.

In Conclusion

I was so very happy with how this money lesson turned out.  My kids really seemed to understand and grasp what we were teaching them.

The conversations we had throughout the lesson were very real and mature and I am hoping this is something my kids will remember as they grow up and begin making their own personal money choices.  And once we were all done we totally let them have a few of the mini candy bars…..just because I try to be a nice mom.  Sometimes.  😉

 

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Related Articles:

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Teaching Kids to Help with Family Chores: Including free chore chart printable

A Financial Tale of Two Sisters

 

I hope this article helps you know how to teach kids about money.

 

 

Allowance For Teens: A Great Teaching Tool

March 7, 2021 By: Sweet Frugal Life5 Comments

Teaching Teenagers To Manage Money Well.

It’s so important for kids to learn how to manage their own money from a young age.  I truly believe if we teach them to do this while they are young, they will have much less money problems when they get older.  And this is the reason why I think that an allowance for teens can be a great teaching tool.  

Perrsonally, I begin giving my kids an allowance at age 8.  You can read more about my reasoning why they receive an allowance and how much I give them here.

Once my kids turn 13 their allowance is increased, but they are also required to pay for most of their own clothes and a few other expenses.  This is an important teaching tool to help prepare them for the adult world.

Why An Allowance?

I know many of you might be wondering why an allowance for teens is a good idea.  This is honestly a question I get a lot, and I understand the confusion.

An allowance is not a handout.

Let me repeat, An allowance is not a handout.

If done the right away, giving your teenager an allowance is not going to spoil them, make them lazy, or teach them to look for handouts (these are all things I’ve been told when I tell people my kids get an allowance).  

Let me explain using this example:

Child without an allowance comes to me and says, “Will you buy me these $50 pair of jeans?”  My response would probably be, “Those are to expensive, let’s try to find something cheaper.”

This child might learn two things from this moment:

  1. Mom is cheap and won’t let me buy what I want.
  2. Mom gets to decide what is worth spending money on, not me.

But, if your teenager is given an allowance along with the responsibility to buy their own clothing the situation could go like this:

Child with an allowance comes to me and says, “Mom, I really want to buy these $50 jeans, but that would take all of my money.  Do you think I could fine them cheaper somewhere else?”

In this situation the child is learning to:

  1. Make their own decisions about how to spend their money.
  2. Deciding for themselves what items are splurge worthy.

Either way the money for the jeans is still coming from the moms pocket, but with the allowance the child is able to learn how to manage their money themselves.

My Experience.

So, this afternoon I had a fun shopping trip with my 13 year old daughter.  I happen to love shopping (yep, frugal AND a shopping lover!) and I love quality time with my kids, so it was a GREAT day!

However, shopping trips with my daughter tend to bring some stress (for me) and anxiety (for her).  Read more below for what happened today….

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My daughter has inherited my frugal ways…..to the extreme.  She hates to spend money, it actually gives her a little bit of anxiety to even consider spending any money…..and I get stressed because there are times when she NEEDS to spend her money, and I wish that she would.

Spending money is part of living…..I mean….we all need to wear clothes, right?!?!?.  It’s important for kids to learn that spending isn’t the problem, over spending is the problem.

Today’s Shopping Trip

So, today we were on a mission.  My daughter had a list, and she wanted to buy it all….without spending a lot of money.

I, on the other hand, wanted her to buy everything on the list without feeling any anxiety or guilt.

Our list included:  2 pairs of shorts, 1 pair of track shoes, a dress, and a swimsuit.

It was QUITE the tall order for my daughter the saver, but we were determined to make it happen!

I let her make the decisions about where to go (she chose the discount store Ross and the second hand store Runway Fashion), what to buy, and how much to spend.

She thought carefully about each decision, she calculated and recalculated how much she was spending, she said no to many things and yes to a few things.  I was a proud mama as I stood by and watched!

A few times she looked at me for advice, and I would always reply with the same questions; “Do you NEED it?  Do you LOVE it?  Will you WEAR it often?  Is it WORTH the money?”  As I walked her through these questions she was able to feel confident in her decisions.

The Perfect Shoes

Three hours later we ended the day at the mall sipping on Jamba Juice and feeling proud to have found everything on the list, all at the right price (yay!).

While at the mall we noticed a store having a big going out of business sale.  Ignoring my advice about spending triggers, we decided to pop in for a quick browse.  This is where my daughter excitedly proclaimed that she had found “the perfect shoes”…..and I’ll admit, they were pretty darn cute!

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The price was right, the fit was perfect, and she was smitten…..but they weren’t on her list…..she didn’t need them….and she was feeling a lot of anxiety and guilt about buying them.

My sweet daughter worried that she shouldn’t make this purchase, she didn’t want to waste her money and spend unwisely.

I assured her that she has always been wise with her money, she saves a large sum of her allowance each month, she always pays her tithing, she still has plenty of money in her “spending” jar…..and it is OK to spend a little bit of money on something that just makes you happy!

So.  She bought the shoes!  You better believe this frugal-tight-wad-mom was so proud of her for making that decision!

And….guess what, she has been on cloud 9 all day because of it!  The shoes haven’t left her feet, she’s been showing them to everyone in the family and has been pairing them with different outfits.

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In Conclusion

THIS is why we give teens allowance.

Today, I kept my mouth shut and let my daughter take control of her shopping experience.  She made the decision to only buy used or discounted clothes.  It was up to her to decide what was “splurge” worthy and what wasn’t.  She learned to budget, she learned to say no, and she learned to say yes.

She was able to come home with less money in her pocket, but also a feeling of accomplishment and confidence.

This is a girl who is preparing for the adult world of spending.

 

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You Might Also Be Interested in These Other Articles:

A Financial Tale of Two Sisters

Money Lessons for Kids: The night we taught our kids the TRUTH about money

The life lessons that taught me to budget for JOY while living in the present!

How do you feel about an allowance for teens????

The Cash Envelope System Explained

March 7, 2020 By: Sweet Frugal Life11 Comments

How to use envelopes for budgeting.

I remember when I first heard about the cash envelope system years ago.  I was so judgmental, so snobby about the whole idea.

“Ew!  What a stifling way to live,” I responded to my husband.

Fortunately, I have grown up (a lot) since then.  I now use cash envelopes proudly.  There is no shame on my face as I pull out money from each envelope and love being able to pay for my purchases with zero guilt.

It was a few years ago when I finally changed the way I was spending money.  I decided to quit using my debit card for purchases and try only using cash.

I’ll be honest, I did not think this change would make much of a difference.  I am a little bit prideful, and a lot of stubborn, and I really felt that I was strong enough to spend smartly with my debit card.

It only took one month of paying with cash to realize that I was so so wrong!  I couldn’t believe how quickly my wad of cash depleted.  It was a huge wake up call as I watched my cash fly out of the envelope in what felt like an instant.

I still use my credit card on a lot purchases….it does EARN me money after all.  But, I try to use cash on everything else.  It’s a bit of a hassle, but I know that it saves me a lot of money.

If you are looking for ways to cut back and have more money in your bank account, today I’m sharing with you how the  cash envelope system will help you do just that!

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Why Use The Cash Envelope System?

As I mentioned above, cash envelopes will help you have more money in your bank account.  Why, you might be asking….well, I will tell you why!

 1. Cash Envelopes Force Discipline

Once your envelope full of cash is gone….it’s gone!  There is no card to swipe, no back door to take.  You simply have no more money for that category.

When I first started using cash envelopes I felt like I had plenty of money at the beginning of each period, so I spent freely.

And, I couldn’t believe how quickly that cash flew out the window.  I found myself with empty cash envelopes waiting impatiently for payday.

Did I want to keep spending?  Absolutely!  But, I couldn’t.  There was literally no money to spend.  This forced me to be disciplined, I had no other option.

2.  Cash Envelopes Are Visual

If you are a visual learner, you will really benefit from using cash envelopes.  Watching the cash go from bank, to envelope, to hand, and then to store is very humbling.

It shows you how quickly you might be spending money, and how fast the cash goes.  For some reason it’s not very hard to swipe a credit card….but it’s very hard to visually watch cash leave my hand (anyone else agree???).

3. Cash Envelopes Are a Proven System

The cash envelope system has been used by hundreds of thousands of people for years….and it’s still popular.

The reason?

Because it WORKS!  I have heard of countless number of stories over and over again of people who have seen success while spending with cash, who have gotten out of debt, grew their savings and more.  All because they implemented cash envelopes.

Start With a Budget Meeting

If you are not already having a regular budget meeting, it’s time to schedule one.

A budget meeting is the time when you and your partner (or this can be done by yourself) will sit down and discuss the budget.  You will look through the previous months budget, discuss any successes and failures, and then make a new budget for the upcoming month.

  • Related:  How to Make a Zero Based Budget

Schedule this into your calendar, otherwise….they probably will not happen!  We like to have our budget meeting on the last Friday of every month.

Setting Up Your Cash Envelopes

The budget meeting is also when we decide how much money we will put in each cash envelope for the new month.  The cash envelope categories change regularly, based upon what needs/expenses we currently have.

Our most common cash envelopes are:  clothing, house expenses, pet food, children’s extra curricular activities, groceries, fun and other.

We also have an “other” category for any extra expenses that come up throughout the month.  We have NEVER had a month go by without something coming up that we forgot to budget for.  Always make sure you have an “other” envelope.

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Once you have your budgeted amount, go to the bank, withdraw the amount of money you will need and start stuffing my envelopes (this is the fun part!).

You do not need fancy envelopes, you can use them if you want….but they are not necessary.  We use boring cheap white envelopes and just write the names of each category on the front.

Now that you have your cash, simply put your budgeted amounts into it’s corresponding envelope.  So easy!

  • Related:  How to Budget With Sinking Funds: Your Complete Guide to the Most Asked Questions

 


Making Cash Envelopes Work

This money will need to last you for the entire time of your budget.  In many cases this will be paycheck to paycheck, we budget our cash monthly.

Remember to watch these envelopes closely.  Spend with caution and be aware of any upcoming expenses you might have later on in the month.

To track my cash spending I like to use a simple note card, stuffed into my envelope alongside the cash.  This is my “mini-budget” where I take note of all expenses and income for that particular envelope (yes, one note card per envelope).

Once the month (or pay period) is over you will repeat the process.

If you have any extra money in your envelope you can do a few different things with it.

1. Keep It There

You can keep the extra cash where it’s at, and for the next month you will have MORE money in that envelope.  This is a great way to save up for something big.

2. Use It Wisely

If you have debt that you are trying to pay off, or any big expenses, you can use this extra cash to help you reach your goals quicker.  Throw that money at your debt, or contribute to your retirement fund.  Use it in a way that will help you  most!

3. Spend It

Even frugal people love to treat themselves every now and then.  If you have extra cash leftover, there is nothing wrong with buying yourself a little reward.  We all need to celebrate!

how to use cash envelope system

Cash Envelope FAQ

Do you still have questions about cash envelopes?  I get it!  Here are a few of my most asked questions, and how I answer them.

Do you worry carrying around that much cash?

I definitely don’t just leave this amount of cash laying around for the world to see.  But, I have never worried much.

The cash envelopes stay home 90% of the time.  The only time I might bring one with me is if I need it for a particular purchase.

For example, last week I went to Target to buy my daughter some shoes.  (I am a recovering Target addict by the way…..).  Before I left I grabbed our “Clothing” envelope, and nothing else.

I used this envelope to pay for the shoes.  And, because I didn’t have any other envelopes with me I wasn’t tempted to impulse shop.  Woo-Hoo!

Can you “borrow” from one envelope for another?

Personally, I am fairly loose with the envelopes and will occasionally switch some of the cash around in the envelopes mid-month.

This probably should be a practice used sparingly, but I think it is a personal decision.  Always do what works best for you and your budget goals.

What if I buy something online?

There is no getting around the fact that we live in an online world.  More people are shopping online now than ever before.

You can still use cash envelopes AND shop online.  Here’s how I make it work.

Let’s say I had $50 in my clothing cash envelope.

And then I spend $30 on clothes while shopping online.

I will then take the $30 from my clothing cash envelope and put it into another envelope I have labeled “bank.”  This leaves me $20 for clothing.

The bank envelope sits tucked away at home, not to be touched.  When the new month rolls around and it’s time to re-stuff cash envelopes I take the money from the “bank” envelope and use it to help distribute to the envelopes.  Any other cash I need I will get taken out of the real bank.

 

Cash Envelopes will save you big bucks

I highly recommend everyone at least TRYING doing most of their spending with cash each month and see how much less you spend.  It truly opened my eyes to my spending habits!  Let me know if you have any questions about how to use the cash envelope system!

Pin this article for future reference:

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You might also be interested in these related articles:

How to Recover your Budget From a day of Impulse Shopping

Budgeting for Beginners: FAQ

Overspending Triggers and Solutions

I hope this helped you learn how to use cash envelope system.

Hello! I’m Melanie!

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