Barefoot Investor: How to teach your kids the value of money

Most parents who pay their kids pocket money are only doing it half right. The main money lesson comes in what they do with it.

Barefoot Investor Scott Pape. Picture: Graeme Taylor

Being a parent is a tough and sometimes thankless job.

It often feels like you’re making it up as you go along. Like you should be doing more.

Well, here’s my promise to you: by the end of The Barefoot Investor for Families, you’ll have a simple, no-fuss plan that will guarantee your kids will be confident and smart with money … in as little as three minutes a week.

Believe it or not, paying pocket money is one of the most powerful tools you have to teach your kids about money.

Yet for most parents, it’s a source of shame … because last time they tried it ‘it didn’t really work with our kids’, and their efforts just sort of fizzled out.

Even then, most parents who pay their kids pocket money are only doing it half right. Getting them to do a few chores and paying them a few bucks is only the first step.

The main money lesson comes in what they do with their pocket money: the spending … the saving … and the giving.

That’s where the life-changing lessons really happen. You want to take that pocket money and use it to teach your kids things including goal-setting, delayed gratification, kindness and empathy. 

What I’m about to lay out for you is the simplest (yet most powerful) pocket money plan you’ve ever seen:

Three jars.

Three jobs.

Done and dusted in three minutes a week.

Let’s begin with the three jars. Head to the pantry, and get some Tim Tams.

While you’re there, see if you have three jam jars.

(Actually, any three glass jars will do. We had the same big-arse jar of pickled onions in our pantry for my entire childhood. I guess mum bought them thinking she’d try that fancy Peter Russell-Clarke recipe, but never got around to it.)

Also check and see if you have stickers to get your kids to label their jars — the more sparkly the better.

If you don’t, make a note to buy some jam and stickers next time you’re doing the shopping.

Go on, do it.

Done? Good.

OK, now as you munch on Tim Tams, let’s jam .… jars (and that is my first, and last, dad joke of the book).

If the whole idea of dividing your money into three sounds familiar, you’d be right …

If you read The Barefoot Investor, you’ll know that I have the simplest money management system going around.

In fact, it’s so simple I sketched it out on a serviette on my very first date night with my wife.

Which is why I call it the “Serviette Strategy”.

As part of that strategy, I recommended dividing your money into “buckets”, and setting up several bank accounts: Daily Expenses, Smile, Splurge, Fire Extinguisher and Mojo.

It caught on so well that some in the media even referred to it as “the biggest finance cult in Australia”.

Well, jam jars are the new buckets for kids — they will transition from the jars to bank accounts when they’re older.

And there’s power in kids being able to see they’re using the same kinds of accounts their parents have.

THE SPLURGE JAR

OK, it’s time to walk off those Tim Tams.

Get up! Stretch!

Put a sticker on one of the jars, grab a texta, and write “Splurge”.

This jar is for your kids’ day-to-day spending.

Hang on, am I saying that I want your kids to splurge part of their money? Yes, that’s exactly what I’m saying.

The truth is that sometimes pocket money works a little too well: kids can get so addicted to watching the coins pile up in their jars that they don’t want to spend it: “Little Mickey is such a good little saver; he won’t spend his money on anything!”, brag his proud parents.

Twenty years later … “Michael is such a miserable tight-arse! He won’t spend money on anything or anyone. No wonder he can’t get a girlfriend,” snivels his frustrated friend.

You don’t want your kids to grow up with an unhealthy obsession with money.

Neither do you want your kids to grow up like one of those snooty teenagers on Instagram who posts a selfie with their $900 handbag (#myparentsfailed).

This jar will help turn your kids into well-adjusted, savvy spenders.

There’s just one caveat with this jar for older kids:

No self-respecting 12-year-old is going to the mall with a jam jar tucked under their arm.

“Hey Todd! Check out my jam jar, man.” Not going to happen.

So, in addition to their jam jars, I’d suggest you get them a wallet or purse that they can transfer their Splurge money into.

THE SMILE JAR

Grab the second jar, with sticker, and label it Smile.

Like the Smile account in my Serviette Strategy, the Smile Jar is for saving up for things that will make your kids smile.

The golden rule of wealth is to spend less than you earn.

(A long-term study by researchers from the UK, Canada and the US — the Dunedin Study — starting way back in 1975, followed the development of more than 1000 kids. It showed that lack of self-control in childhood was the number one predictor of financial problems — more so than social class or even IQ!) 

Here’s the deal: the art of saving is as much a financial technique as it is a character trait.

And that is what this jar is all about.

When you ingrain the act of regular, systematic saving, you’re not only creating money “muscle memory” — you’re giving your kid a way of looking at the world that will keep them safe, long after you’re gone.

THE GIVE JAR

What do you think we’re going to name the next jar?

If you thought anything other than Give, you need to tone down the Tim Tams.

This jar is what I refer to as “the brat buster”.

Not only do studies show that we get more pleasure from spending money on other people than on ourselves, it has even been shown to change the mindset of bratty, self-centred teenagers.

Being kind is a big deal in my family — it’s much more important than money.

That’s because if my kids are kind, they’ll be happier, have more meaningful relationships and be decent human beings.

This is an edited extract from The Barefoot Investor For Families: The Only Kids’ Money Guide You’ll Ever Need (HarperCollins) RRP $29.99

Information and opinions provided in this column are general in nature and have been prepared for educational purposes only. Always seek personal financial advice tailored to your specific needs before making financial and investment decisions