YNAB Podcast Episode 74: Your Kids Need a Budget

Hello YNABers. My name is Jesse Mecham and this is podcast number 74 for You Need A Budget, where we teach you four rules to help you stop living pay check to pay check, get out of debt and save more money.

Today I want to talk about money and kids. I am not… well, when you’re a parent for the first time you don’t know what you’re doing. Your only experience is what your parents did with you. Hopefully it was great. Mine was. Anyway, you don’t know what you’re doing, and I certainly don’t know what I’m doing. But I will still share with you what we do when it comes to our kids and money.

First I want to talk to you about what we’ve tried in the past and what we’re doing now and how, and maybe a little why that’s working. So, one, I think it’s important that kids earn money so they have to manage it and get in the habit of that – having money pass through their fingers, maybe a little bit stay in their fingers. So with the kids, we at first tried cash where they would earn money doing various… it was pretty random stuff, and we would say, “We’ll pay you a quarter or 50 cents to do this.” But we try and teach them to tithe, and so if you give one of the kids a quarter and then you’re trying to teach them to tithe, that means if they would want to give two and a half cents… and that got kind of dicey. So if you’re giving them 50 cents that’s easier because it divides evenly. You can do five cents out of the 50. We’re trying to teach them to save half of their money for school and when their money will be important to them later on, and then spend the other half.

So, with the tithing at 10% and then the giving and saving, they end up 45% for their own and 45% for the saving. I don’t know how long we’ll keep doing that. I think when the kids get older I don’t think I would mandate some kind of a savings rate or anything like that. I just want to teach them that saving money feels really good, then hopefully they can pick something reasonable for themselves. But for right now, I am the dictator and they are all young enough that I can pull that off without any issue whatsoever. So, when the rebellion comes I will amend this podcast.

This was pretty unwieldy for us having cash, and it bugged me to no end when I would give them cash and then I would find the cash had been – by cash I mean change – had been left around the house, “Whose quarter is this?” “That’s my quarter,” “No, that’s my quarter.” It was a disaster. Or it just kind of made me think, “We’re screwing things up,” because they would get this money that they’d worked for and then they would lose it. Maybe it wasn’t intentionally leaving it around, but they would just unintentionally lose the thing and they’d be sad about it. We got them wallets – that didn’t work very well.

One of the kids was stealing money from the other kids, so that was a teaching moment for the whole house or something. Then we got banks so that the stealing couldn’t happen. But the banks were… When they wanted to get their money out to spend it, it didn’t work very well – the accessibility of their money was poor. And we’d go out and be around maybe Target or something – the kids love Target and the toy section – and they would see a toy but they couldn’t buy it because they didn’t have their money with them. And if they brought their money everywhere they went, they would lose it. So that was a problem.

We still had a little bit of theft of just things in general, and so for Christmas two Christmases ago we got the older boys what they call safety kits. I’m not sure why they call them that, but they’re just fireproof safes and they have keys, and I keep a copy of the key and they keep a copy of the key. They have both lost their keys, so now we’ve just relied on my keys that have not yet been lost to gain access to the safes. Anyway, three boys sharing a room – I think it’s a little too tempting for the three year old to not play with their stuff. So they cram everything they can in those safety kits.

This wasn’t working for us. About… I don’t know when it was, maybe a year and a half/two years ago, I heard about a service where you could kind of be your own kids’ banker and they could earn interest and things. The name is escaping me… FamZoo. I don’t even know if they’re still around. They probably are – they’re probably doing really well. Anyway, it was all about managing kids’ money and you’re the banker, and you can pay them interest and things. Pretty interesting set-up, and I checked it out for a while. The only thing that kept me away from it was I didn’t want to manage two different money systems.

So I thought, “Okay, what would I do if I already use YNAB? I don’t want each of the kids to have their own version of YNAB – that would be just total overkill.” So what I did is I set up a master category called Kids. And then for each of our five kids, I set up three categories. So they’re all under one master and I ordered them by age, and I ordered them… named them Porter-Tithing, Porter-Savings, Porter-Fun, because those are his priorities – tithing, savings, fun. And then Harrison, same thing: Harrison-Tithing, Harrison-Savings, Harrison-Fun. So out of the five kids, three categories each, you’ve got 15 categories all under one master category that remains closed most of the time, and you get this long list.

Now, when the kids are paid, we just budget money into those categories. If they’re paid 50 cents, I can easily drop five cents into tithing, 45 cents… Oh, let’s see. Five cents into tithing, and then 13 and 12 into… My math is off. Okay, let’s hold the phones for a second. 50 cents. Five cents goes into tithing, leaves me 45 cents left over. So then you have a difference of 23 cents here, 22 cents here. The conservative side of me always rounds up toward the savings. And the kids understand this – they get it, they see that their savings category balance is growing. Every once in a while their tithing balance will grow enough that we could actually make the donation, otherwise you’re just giving pennies and the people that have to do all the finances for the church probably would prefer to have it consolidated. Anyway… It’s also kind of to help our sanity too because we can batch process that situation where we’re doing a lot of showing them how to literally do everything.

Then their Fun category is the important one to the kids. The nice thing is everything’s virtual, so you’re just assigning money to those categories. And the best part is that when they’re at Target and Julie’s with them and they’re looking at toys, I’ve never liked not telling them they could buy something. I want it to be their money that they have control over. I don’t want it to be their money except they have to have dad’s approval to actually use the money. That doesn’t sound like their money, it sounds like mine; and I want them to actually have their own.

I’ve had Porter plenty of times – because he’s the oldest, he’s had the most opportunity – waste his money. And it was killing me inside because I knew it was waste. But he was so excited about it, the money’s burning a hole in his pocket, he just thinks in his mind, “I want to buy something today, I want to buy something when we go to the store.” And no matter what, he will buy something. He’ll just settle. And it’s been a learning lesson for me to back off, let him make the mistake and just be okay with it. And he’ll learn over time.

So, as we’re in Target or whatever and they said, “Hey, I want this,” all that Julie has to do – she’s normally there with them – all she has to do is just whip out her phone, check the category balance, show it to the kids and say, “Well, see Harrison, on the fun you’ve got $7.19. Remember you just spent $5 on X, so you’d need a little more to be able to buy this $10 thing.” Harrison’s totally okay with it. It’s the easiest way I’ve ever found to say no to things because we simply have them check the budget. We say, “Okay, well let’s check your budget, because you totally can buy this if there’s money there.” They look, there’s enough, they’re totally jazzed about it, and then you’ll maybe give them a cautionary sentence or two like, “Hey, remember if you buy this here, you mentioned a couple of weeks ago you were saving for X. Are you still planning on saving for that or is this new thing what you really want?” “Oh, this is the new thing! This is what I really want!” “Okay, cool.” So they buy it and it’s all good. We record the transaction to their category, it flows out.

Money never changes hands in the sense that I’m never handing them cash, change, they’re never having to split quarters and do all that to be able to manage it. They know to check the budget. They’re being taught it at a really early age, “You check the budget to see if you can spend.” They see they have money there in savings and they see they have money there in tithing, but they know that money is earmarked for other jobs. And the one they care about is that fun money, and they want to see it grow. It’s worked well for us for this last while that we’ve been using this.

Tonight we’re going to have a little family meeting and I’m going to reiterate the whole chore thing – Spring’s coming, yard work will need to be done, the kids are getting older and will be able to help me. Plus, if you’ve been keeping up with my 2012 budget rehash, I want to fire my lawn care company and I will hire the youngest lawn care company ever, which is Porter and Harrison with my help. So, it has me pretty excited having them earning money. I think it’s important that kids do. I think some jobs they should… This is me personally, but I think some jobs they should do just because they live in the house, and other jobs I think that they should be paid for. So that’s kind of what we’re working on.

Until next time, follow YNAB’s four rules and teach your kids about it, and they will win financially. You have not budgeted like this.