Momma, can I take the $40 from grandma and grandpa to the Dollar Store?

Dada, how much does a dog cost? 

Yes, a third grader and kindergartner can be curious and money conversations become more difficult as they grow older. Making kids understand how money works is a start, however financial literacy doesn’t equate to understanding value or making good, responsible decisions. 

A book to help create financial decisions as teaching opportunities is The Opposite of Spoiled: Raising Kids Who Are Grounded, Generous, and Smart About Money by Ron Lieber. 

Let me share the central strategy: Allowance & Three Jars.

No allowance for chores. Lieber argues when parents tie allowance to completion of chores, they make work the primary focus, not money. Kids should do chores for the same reason we do - because they need to be done. If done poorly, there are plenty of privileges we can take away.

Allowance as a teaching tool. If your child can count and ask to buy things, start an allowance. Consider 50 cents or $1 a week per year of age, raised each year on birthdays. Your focus is to have them learn patience, strive for a goal and make decisions with defined resources.

Three jars: spend, save & give. They divide allowance into three clear jars each week: spending now, saving for later and giving to those who may need it more - an introduction to budgeting.

Now here is where I’ve come to differ from Lieber. 

He pays an unrealistic interest rate each week (i.e. 20%) for “save jar” to help kids visibly see the power of savings and compounding. Once spent, less interest is paid, helping teach selective spending decisions and building of savings.  

Thinking like an investor. I want them curious if something can be invested in, think why (or why not) it is a good investment and participate in risk/reward. 

To execute, some investment firms allow buying slices of shares, up to 5 companies for $50 total. Can be in a child’s name via custodial account (beneficial capital gains rules) and viewed as a teaching tool rather than education savings since they’ll be spending on their larger wants.

As a holiday gift, we started three companies they knew and two I educated why they own it. Monthly we review values, if dividends were paid, total account value, if they want to add more and/or if there’s a new company they want to invest in.

I’ve explained their favorite pizza shop is a small business that doesn’t have shares. Also explained who makes a game they like, which they decided to take from their “save jar” to buy. It’s down ~15% in a short time but I asked if the reason they bought is still true, if they want to buy more, still hold or sell.

Remember, it’s about learning and making mistakes now, to benefit when they’re older with their real earnings.  

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

Glenn Brown is a Holliston resident and owner of PlanDynamic, LLC, www.PlanDynamic.com. Glenn is a fee-only Certified Financial Planner™ helping motivated people take control of their planning and investing, so they can balance kids, aging parents and financial independence.