Beyond the Bank binders were designed to be flexible for the different ways parents decide to handle money with their kids - meaning they aren't tied to chores or allowance nor do they require specific percentages for how kids should divvy up their money.
How you handle money is personal, after all, but there are some general guiding principles that will help kids start to learn the basic skills to be successful stewards of their money. These rules can be implemented with a Beyond the Bank binder or just with a jar or envelope system. What's most important is that kids start building these foundational habits as early as possible.
Rule #1
Make a Plan for How to Allocate Money to Save, Give, and Invest
When kids receive money - as a gift, allowance, payment for chores or grades, or even money they earned selling lemonade - they should have a plan in place for how to allocate that money. Without a plan in place, the chance that they spend the money on the first thing that catches their eye goes way up, and the chance that they willingly give away some of that money goes way down.
They don't have to have the same plan across the board. For instance, our kids set aside at least 20% of their allowance each to Save, Give, and Invest, but so far we've allowed them to divvy up gifts they receive for birthdays or holidays however they choose. They have the option to put the remaining money in a Spend category, for smaller purchases or to have in their wallets if we go out, but usually choose one of the other categories because they have goals in mind.
A Save category should be used for holding money they are saving up for things they want to buy. An Invest category should be used for long term savings that they never spend. And a Give category should be used to hold money until they are ready to donate it or spend it on supplies to donate.
When kids make a plan for how to allocate money they receive, they are starting to build the skills and awareness needed for more detailed budgeting as they get older.
Rule #2
Use a Wish List to Track What You Want to Buy and Wait at Least One Week to Buy it After Writing it Down
Kids have a never ending list of things they want, and when they have money in hand, it's difficult not to spend it right away. But kids (and grown-ups!) can fall victim to all sorts of impulse purchases, only to realize later on that they didn't want the item all that much anyway.
By using a Wish List to keep track of the things they want to buy, and waiting at least a week to buy it after they write it down, kids are able to re-evaluate whether they really want an item without the pressure of looking at it or holding it in the store. They can approach the purchase with a clear head and all their options on the table.
A Wish List is also a great tool for parents to use when kids ask them to buy something at a store. When our kids ask, we remind them they can add it to their Wish List and we usually snap a quick photo so they can remember the name and cost. Often that alone is enough to help them move on from begging to buy it right then and they don't even remember to put it on their Wish List later.
Some items hold enough interest to make the Wish List, but after a week or more has passed, they realize that they don't actually want to spend their money on that particular item anymore and it gets crossed off the list. And if they do find something that, even after a week, they know they want to spend their money on, they're able to search online and find deals, offers, or savings that they likely wouldn't have gotten if they'd bought it in store right away.
Using a Wish List and implementing a waiting period helps kids strengthen their delayed gratification muscles and it teaches them to really evaluate what they value most when spending their money.
Rule #3
Actively Look for Ways to Donate Your Money or Use it to Buy Items for Those in Need
Teaching kids how to be active savers and thoughtful spenders is great for their long term money management skills. But to help them find true fulfillment and joy in handling money, teaching kids to become willing givers is critical.
Once kids have a plan to allocate their money to saving, giving and investing, it's easy for the money they set aside to Give to end up sitting there collecting dust. There are so many ways for kids to give back, both through donations of money or buying supplies to donate with their money, and through their time and efforts. All of these ways help kids start to feel the incredible good fuzzy feelings that contributing to society and giving back bring.
If your kids aren't sure what they want to do with their money, help them think through the things they're interested in, or the people, places, or things they think might benefit from their help. Schools often have various drives throughout the year to benefit the community and having kids spend some of their donation money to buy supplies for a food, clothing, or gift drive at the school is a great way for them to feel directly connected to their gifts.
The point is to plan a regular time to think about how they can use the money they set aside to Give and then actually follow through with giving it away, so that they can experience the joy that comes from helping others. These are the feelings that will help grow and strengthen them into generous human beings.
If you haven't signed up for it yet - our free 5 day email series on starting a conversation with your kids about money includes an awesome diagram to help guide kids to choose ways to give back that they're interested in.
Rule #4
Don't Spend Any Money That You Put in Invest
(at Least Not for a Very Long Time)
You see the headlines all the time: "Fill-in-the-blank age group doesn't feel they've saved enough for retirement" or "Americans don't have enough savings to cover a $500 emergency" or "Milennials and Gen X's who don't own a home say lack of a down payment is the stumbling block".
Saving money for the long haul can be tough. Sometimes, such as with a down payment, the goal is concrete enough that it's easy to remember why you are saving for so long, even when it's hard to accomplish it. But in the case of emergency funds or retirement accounts, saving long term requires putting the happiness of your future self ahead of your happiness in the now. And that can be a difficult concept to grasp.
When kids put aside money for very long term savings that they don't have any expectation of using, not only do they become used to the idea of saving for a non-concrete purpose, but they also get a bit of a head start on building their long term savings. It's money they can use for a big purchase one day, like buying a car or to help them through college. And it's money they can start earning interest on, which is the topic of...
Rule #5
Earn Interest on the Money in Invest, Either by Opening a Savings Account or Convincing Your Parents to Pay it to You
Compound interest is one of the wonders of the financial world and time is the greatest asset to getting the most benefit. Setting aside money for long term savings is a great habit, but if the money isn't earning any interest, it's actually losing value due to inflation.
A basic savings account at a bank is great way for kids to start earning interest on the money they set aside long term. Traditional banks allow kids to experience depositing their cash in person while online-only banks tend to offer higher interest rates. Parents can help kids figure out what option is best for them.
Alternatively, especially when kids are just starting out on their financial journey, parents can pay a monthly interest on the funds kids of put in their Invest category. When our kids were just starting out, we paid them 5% monthly on the total amount in their Invest category. At first, it was only a few cents, but it didn't take long for it to grow enough that they were seeing meaningful additional amounts of money coming in. We've backed off to 5% annually now, but they still get excited when they get an extra dollar just for having kept their money in that account.
Whichever way works best for the family, help kids to start earning interest on their long term savings, so they can start to experience the magic of compounding interest. Hopefully it will inspire them to be young, dedicated savers, so they can get the most out of the money they earn as they transition into their adult lives one day.
