Teaching your kids how to think about money is super important. You can check out my blog post on that subject HERE.
Making the lessons practical and teaching them how to handle money is equally as important. There are tons of budgeting outlines all over the Internet, but the money system I’m going to recommend in this post sets your kids up to have a millionaire money management mindset. Creating these habits early will be another way you are proactively setting them up for a happy and prosperous life.
This system is referred to as the Jar System and it is adapted from T. Harv Ekers system from his book Secrets of the Millionaire Mind.
Begin by gathering 6 jars, one for each of the 6 categories. The jars are great for kids so they can get the full visual reinforcement of the system. As your kids deposit their money into the different jars, they will begin, at least subconsciously, to think about how to spend it. Later as they become adults, they can shift it into bank accounts, but for now having these jars visible on their dresser or desk is important.
There are 6 jars/money categories to be distributed into each month. These include:
• Financial Freedom Account (FFAFuture)
• Education Account (Learning)
• Long Term Saving for Spending Account (LTSavings)
• Play Account (PLAY)
• Give Account (GIVE)
• Necessity Account (Basics)
1. Financial Freedom Account (FFA Future – 10%)
Each month start by placing 10% into your future. This jar is the “golden goose.” The money saved in this jar is only to be used for investments and for building passive income streams. Having this jar be a priority early in life is crucial to financial freedom later in life. Remember, we are trying to foster a mindset that will create financial freedom that starts now. The key here is that you never spend this money. The only time this money would be used is once your child is financially free and ready to invest on a larger scale. Even then, this money should not be spent--only invested. The returns from it can be spent, but never the principal. It is the equivalent of a retirement fund but invested with a higher return.
2. Education Account (Learning -10%)
Life-long learning is key to an outstanding life. The money in this jar encourages this habit. These funds can only be used for learning and growing. This is ultimately investing in yourself. You are your most valuable investment and it is important your kids know this. Encourage them to be excited about what they use this money for and be sure to keep letting them know that learning never ends. They can use this for extra science kits, art supplies, books or audios, classes, camps, or anything else that encourages them to learn and grow.
3. Long Term Saving for Spending Account (LTSavings – 10%)
This jar is specifically for saving for the larger ticket, “nice to have” things. A great example would be a trip or a new bike. As an adult, this area allows you to have money to do big ticket things that are not needs. A small amount per month adds up quickly.
4. Play Account (PLAY – 10%)
This is often everyone’s favorite account. This money allows you to PLAY and enjoy life. The purpose of this account is to nurture yourself. For kids, this is all that little stuff they want but really don’t need. They can take 10% of their money and experiment, like buying clothes or candy. It is also a great category for funding new sports equipment they may want but, again, don’t need. When they are adults, this would be for going out, getting a massage, tickets to a play, or other forms of relaxation or entertainment. Play is what gives juice to life and it is important to enjoy and nurture yourself and your relationships without worry.
5. Give Account (GIVE – 10%)
Giving is a huge part of having an amazing life. It is so important to give regularly with love. You can give more than just time as well, for example house sitting for an elderly neighbor or volunteering. With this jar, the kids think about giving every time money is divided out. This money can go to a charity your child loves, for example adopting a child or animal, tithing at your church, as well as gifts for family and friends.
6. Necessity Account (Basics -50%)
50% of all incoming money goes into this jar. This is your living expenses account. This is for everything you need to live (mortgage/rent, utilities, food, clothes, taxes, bills, insurance, etc.) Yes, half goes towards living expenses and your kids should begin internalizing this concept early. Start teaching them to think about more than working to just pay bills. It is important to have them set this habit from the beginning. The money put aside in this jar can be saved for a down payment on a house, a car, or college. Do not let them skip this jar. It is important to build the idea that 50% goes to necessities. When they are ready to leave home, they will have a firm understanding of how much they have and what they will need to live on their own.
Starting to use this system now is very important. This becomes a habit that will develop into how they think about living their lives. Start them as low as $1 or $10 a month. Give them 10 dimes or dollars to split into jars. It is the habit and action over time that will create the wealthy and healthy mindset. Notice there is nothing to pay off loans. If they see that every month their subconscious will understand that going into debt is a natural thing to do. I think we all agree a life lived without debt is healthier and happier. Let them learn about debt later, pros and cons, when they are ready to make those decisions.
I often say success leaves clues. This is one of those clues. Successful people think and plan for investing, learning, saving, fun, and education every time they handle their money. What amazing habits to pass to our kids! As I mentioned before, for more information about this system, read Secrets of a Millionaire Mind by T. Harv Eker. Don’t forget, kids totally learn by example. You could make this a family project. We did!