Raising Frugal Children

TheFieryOne and I do not yet have children. But we have many friends and family members with children, we were once children, and we plan to have children in the future. So we often talk about the types of methods and principles we intend to use in raising our own, future children.

So far, we have established two money-related parenting strategies we believe will help our children become frugal and money-wise:

Savings Rule #1: TheFieryOne’s parents had a rule that she and her siblings, when they earned money, would save 50% of it. Always. As their bank account balances increased, they learned the excitement of saving, something I failed to experience until the last few years. They also learned about interest. TFO still gets a gleam in her eye when she talks about monitoring her savings account when she was young to see how much interest she had earned.

During her teenage years, TFO worked part-time and 50% of her money always went directly to savings. She could have purchased a car with cash, but held off because she had developed a healthy respect for what it took to get her life savings to that level. Plus, her parents allowed her to use their cars, and eventually bought an old, beat-up sedan for her teenage enjoyment.

I don’t regret having purchased my own cars using bank loans because my parents were not willing to buy me a car and I was particularly independent during high school. I explained my reasons for not saving money during my youth here. But TFO and I think we’ll be able and willing to provide at least one car for our kids who can drive so they won’t have to spend all of their money on transportation.

Savings Rule#2: Much like the defined contribution pension plans I mentioned earlier, we have a plan to match our children’s contributions to their savings. I can’t remember if we ironed out the exact details, because I’m a little hazy on whether we plan to match the required 50% or not, but we’ll definitely match anything above and beyond that, dollar for dollar.

Early withdrawal penalties will definitely apply lest our kids try to get the match and then withdraw right away. They won’t be fully vested until they turn 18, so if they withdraw any principal before then it’s penalized dollar for dollar, meaning we’ll take our contributions back for that amount (we probably won’t bother with interest).

Our goal is ultimately to help our children be patient in saving and spending. We want them to develop a healthy respect for money and an appreciation for investing and earning interest. We also want them to refrain from buying too many unnecessary things. TFO and I could afford a vacation to Hawaii if I suddenly received all the money I spent on candy and entertainment as a kid (granted, my family was not well off, so I pretty much had to pay my own way for any extras, including new clothes, but that’s a post for another day).

What do you think? Do you have other plans or have other ideas worked for you?

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4 Comments on “Raising Frugal Children”

  1. 444 Says:

    My oldest three (10 and up) all have savings accounts and the oldest also has a checking with debit card (he’s written checks never, and has used the debit card only once, to order starter tomato plants online – he likes to garden. He gets taken in by those catalogs promising trees that will grow bushels of three kinds of fruit on it, and when you get the ordered product, it looks about as big as a wilted blade of grass. But he did grow edible tomatoes as a summer project from this purchase.) He has to be reminded to put his earnings from odd jobs in the bank or he’ll save up $200 on his bedside table.

    The next younger one just made his first deposit, of $90 (birthday/Christmas money) to the bank account I took him in to open a few months ago. I enjoyed teaching him to fill out a deposit slip and hand it to the teller. He’s been going on 13 since age 5 so he enjoys independence and takes pride in not wasting money like the youngest of the three brothers does, but that child also has an account now and pounces on his statement when it arrives in the mail so I hope he’ll soon get competitive with his brothers in watching his $40 grow. So far he has only grumbled about wishing he had faster access to that $40 every time he sees something he wants to buy, which is constantly.

    But he does get excited about the few cents in interest when he pounces on and opens his monthly statement. Kids appreciate interest even if it is only 2 cents because it’s money that they didn’t earn and didn’t come from parents. It’s a miracle to them that their money generated new money, and I hope they keep up that enthusiasm.

  2. Miss M Says:

    Wow, I have the exact same thoughts. No kids yet but I am determined to raise more financially aware kids than I was. My parents philosophy was keep me poor, I barely had an allowance and wasn’t allowed to get a job. When I finally got ahold of credit, I went wild. Kids need to be exposed to and educated about money, TFO sounds like her parents did a great job. I like your plan, mine is similar though I’m adding charity to the mix. The kids will get to decide at the end of the year what charity to donate their money to (10% or so). Another thing my parents flunked.

  3. 444 Says:

    I forgot to mention that the oldest and the youngest boy each own a few shares of stock. The youngest, in particular, really enjoys watching it. The same way he is thrilled by two cents of interest, he is intrigued that his $60 investment goes up in value some days. He’s gracious about it when it goes down on other days.

    The middle boy doesn’t care much about stock and he is the best saver of the three. To each his own style. Sorry if I’ve hijacked your post. I guess I wanted to give real-life, real-time examples of teaching kids about money since you’re in the planning stages and I’m already in the middle of it! :oD

    I got small allowances and earned small amounts doing various chores and was encouraged to get a job ASAP, but family finances were not shared with me and I grew up basically financially illiterate. I’m making sure the same thing does not happen in this generation.

  4. Revanche Says:

    I’m not sure that my parents’ version of teaching us about money by not giving us any and buying all that we needed was the best education.

    I did get to write their checks for bill-paying when I was 11, though, so that was a fascinating thrill. If I have kids someday, I’m pretty sure that a plan similar to yours would be developed, I’m just fuzzy on when it would start. And does it include gift money? Because all my “income” before the age of 15 was gift money from Christmas or Chinese NY.


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