Smart Money Smart Kids: Raising the Next Generation to Win With Money

by Dave Ramsey

  RACHEL: It is so important for parents to help their kids make the work-money connection from an early age. That means instead of an allowance, you should reframe the whole discussion with your kids. When speaking of money, “allowance” shouldn’t even be in your children’s vocabulary. Use the word “commission,” and explain how money comes from work. As soon as your children understand cause-and-effect relationships, you can start teaching them the relationship between work and money.

  The Fear Most Parents Have

  Without fail, every time I’m on the road speaking to groups, I have a parent ask me, “How can I raise my kids not to feel entitled? How can I teach them the value of a dollar?” From my experience, the basic principle of working is one of the best ways to combat the attitude of entitlement. Once your kids understand that money comes from work, they won’t be able to spend money on a toy without considering how much work went into actually making that money. Sure, they can and should enjoy a good purchase, but working for it makes every purchase—even a toy or video game—feel like an accomplishment, not an entitlement. Encourage your kids to discover the dignity of working and earning money themselves. The worst thing you can do is become a human ATM and give your kids a five, ten, or twenty dollar bill every time they ask.

  START THEM YOUNG: AGES THREE TO FIVE

  I’ve talked to many parents who tried the commission system with their children as young as three or four years of age, and they’ve been shocked by how their kids have responded. Kids will jump on board with new things—yes, even money-type things—quicker than you may realize. You can create incredible teachable moments when you give your young children an opportunity to do a few things around the house and get paid for doing them.

  Jobs for Little Kids

  A word of caution: Some parents get so excited when teaching their kids about money that they go a bit . . . well, let’s just say they go a bit overboard. Call me crazy, but telling your four-year-old to do the dishes every night and mow the lawn every weekend probably won’t work out too well.

  Remember, you’re not opening up a sweatshop. For young children, I recommend that you limit the number of chores—somewhere around three jobs—and keep them short and simple. You want each job to be enough that it feels like a big accomplishment, but not so much that it seems complicated or impossible to complete. Some great options for chores at this age include:

  Picking up toys

  Putting dirty clothes in the laundry basket

  Making his or her own bed

  Matching socks in the clean laundry

  Setting the dinner table (with supervision)

  Collecting the indoor trash cans from around the house

  Helping carry in light groceries

  The job assignments are up to you. Just list a handful of responsibilities your child is capable of doing and put a dollar amount on each one. You might be surprised at how excited your child gets about this. A friend of mine explained this system to his four-year-old daughter for the first time one Saturday morning, and her playroom went from looking like a tornado blew through it to “spick and span” in under thirty minutes. Not a bad return for a dollar!

  Pay Fast and with Excitement!

  When you’re initiating the commission system with kids under age 5, you should pay them as soon as the job is complete. They need that immediate connection between the work they did and the money you’re handing them. Younger kids don’t relate the action and the reward if payment is delayed, especially by several days.

  Let’s be honest. When a four-year-old cleans his room, we all know that probably means Mom or Dad put away ten toys and the child put away two or three. That’s okay. The goal at this age is to get the child in a mindset of working. That’s not going to happen overnight. As long as your kids understand what the job is and what it means to see it through to the end, you’re doing just fine.

  As soon as your children finish the job, you should inspect the work. You’ve got to really amp up the enthusiasm here. Get excited! If they cleaned their room, then they need to feel like they are the most incredible room-cleaners on the face of the earth! It may sound silly, but you’re doing two things by expressing your excitement: You’re showing them how proud you are of the work they’ve done, and you’re building up their own pride in their hard work. At that point, handing them their commission for the job doesn’t come across as an expectation; it comes across for what it is: payment for a job well done. That’s the kind of mindset you want to encourage.

  Make It Visual

  Another key for rewarding kids between the ages of three and five is to make their commissions visual. With older children, you’ll use the envelope system for setting money aside for saving, spending, and giving. But when you’re just starting out with really young kids, it’s a good idea to make the money look as big and impressive as possible. That means keeping it all together.

  My dad taught me a great method for making fifty dollars look like $1 million to a five-year-old. Use a clear container and pay in dollar bills instead of loose change. As you put the bills in the container, be sure to rustle them up just a little bit. A stack of dollar bills can look pretty thin if it’s lying flat, but if you get the bills wrinkled and a little wadded up, they start to look a lot bigger and more impressive when you see them in a clear container. Kids are visual learners, so it’s great visual reinforcement to watch the money grow.

  You want your children to imagine the bills exploding out of that jar. That kind of stuff gets them excited about their money, and they should be excited about it—after all, they earned it!

  The Main Goal: Spend

  When you have a three-, four-, or five-year-old, getting them to do a few chores and paying them is an incredible head start. Most children this age can’t fully grasp money concepts like setting some aside for saving and spending (we will get there soon; don’t worry). So the best way to reward young children is to go shopping with some of the money they have earned. Can you imagine how proud they will feel when they hand the cashier a couple of dollar bills that they earned all by themselves? Something amazing happens in little boys and girls when they get to walk into a store, pick out a toy all by themselves, and pay for it with money they earned.

  GROW THEM UP: AGES SIX TO THIRTEEN

  As your children grow, the chores, responsibilities, and maybe even the dollar amounts should grow to reflect their ability and maturity. As I got older, I wanted to do more things and buy more stuff, just like any other kid. We knew Mom and Dad would always take care of our necessities such as food and clothing, but Denise, Daniel, and I were under no illusion that our parents were there to fund every little thing we wanted to do. That meant as our wants and needs grew, so did our chores.

  Make a List, Check It Twice

  We continued to get paid commissions on the work we did around the house as we got older. I remember having a list of five specific chores, and I got paid one dollar for each of those five jobs. This wasn’t back-breaking labor; I’m talking about tasks such as making my bed, taking out the trash, feeding the dog, jobs like that.

  We had a chore chart on the fridge to keep track of who did what and how much we earned. Mom wrote our names on the chart and listed each of our five jobs. When we completed each task, we were supposed to put a check mark next to the chore to show that we did it.

  Now does that mean I got a dollar every time I put my dirty dishes in the sink? No way! There are always going to be things kids should do around the house just because they’re a member of the family. For us Ramsey kids, most of those unpaid chores revolved around mealtimes. We didn’t get paid for setting the table, taking our dishes to the sink, or drying the dishes. If you were part of the family, cleaning the kitchen was simply expected.

  You want your kids to understand that money comes from work, but you don’t want to go so far that they end up thinking they should get paid for everything they do around the house. Money can’t be the motivator every time; we all hav
e to do some jobs simply because they’re part of life.

  You, as the parent, should figure out a handful of specific chores and a dollar amount for each one. That’s your call. As I said, my parents paid me a dollar for each of my five specific chores. That’s just what worked for them. The types of chores and specific amounts that work for your family are up to you.

  DAVE: Every time Rachel or I present the commission idea to a group of parents, we have at least one parent who disagrees with us. They argue that children should do work around the house just because they are part of the family, and they should not expect to get paid. I agree, but if you don’t involve a money transaction in a few chores, you lose all the teachable moments in the work, spend, save, and give principles. Our children had a few chores that were paid commission items, and the rest of the work they did because they were part of the family. It is an act of love to help your mom or dad with the dishes, and it is not an optional act of love. These non-paid chores help teach kids how to be good citizens of their church or community, later producing adults who willingly volunteer to help others.

  I grew up in a wonderful Leave It to Beaver neighborhood. It was a new suburb in Nashville, and almost all the families were first generation off the farm. Farmers are hard workers, so physical work was a part of our neighborhood, as was pitching in to help with projects other neighbors had going. Of course, no one expected to get paid; we were just helping our neighbors.

  Our next-door neighbor was one of the nicest men I have ever known. He was kind and gentle and would help anyone in need. He was also a mechanical genius and enjoyed fixing and building things. He built hotrods from the ground up in his garage. And he could weld and turn a wrench on just about anything. To accomplish his hobbies, he collected stuff in his backyard—I mean a lot of stuff. As an adult, I look back and wonder what conversations took place among the adults, but all I knew was that every so often, all the neighborhood kids and many of the adults would show up to help John clean up his backyard.

  We worked for hours moving and piling scrap metal, filling trucks with things to be hauled to the dump, and mowing and trimming the yard. We kids thought it was great fun, and everyone loved John and enjoyed helping him. When the yard was finally clean, all the kids were allowed to jump in the back of John’s pickup truck for a ride down to the Kwik Sak for an ICEE. Our pay for a half-day’s work was an ICEE. Well, not really. The real pay was that forty-five years later, I look back on the lessons those mornings taught me: hard work, working with others, and, of course, repaying the kindness of a helpful neighbor with a simple cleanup day. You may think this was just a bunch of rednecks who let their kids ride in the back of a pickup, and you might be right. But those neighborhood work days played a huge role in making me the man I am today.

  Adventures in Babysitting

  RACHEL: By the time I turned twelve, I received weekly commissions for my home chores, but I remember wanting to do more. Some of my friends at that time were babysitting. Now if you can imagine, I don’t do things halfheartedly. If I was going to take on this new venture of watching other people’s kids, I was going to do it right.

  As I planned out my new endeavor, I focused on presentation and customer service. When a family was interested in hiring me to watch their kids, I would meet them and walk them through my presentation binder that highlighted my skills, experience, references, and fee schedule. Later, if they scheduled me—and seriously, who wouldn’t hire a professional babysitter like that—I had them complete a form I created that included the hours they planned to be away, where and how I could reach them, emergency phone numbers and contact people, and any special needs or instructions I’d need to know. You can just call me Little Dave if you’d like.

  It didn’t take much time to put my binder and forms together, but it made a huge difference in my business. Dad always taught me that doing little things like that made me stand out from the crowd, which made me more marketable. Even if I didn’t know what “marketable” meant at age twelve, I could definitely tell that I was getting more babysitting jobs than my friends.

  Jobs for Older Kids and Tweens

  When your kids are in the six- to thirteen-year-old age range, you need to upgrade their chores. By six, they are ready for a little more responsibility, so you can start to add more jobs and provide less hands-on help as they complete them. We recommend listing their tasks on a chore chart and sticking it on the fridge so they see it every day. Make a big deal when they complete a task and check off the item as done. Some great household jobs for this age range include:

  Making their own beds

  Feeding pets

  Vacuuming and sweeping

  Sorting, folding, and putting away laundry

  Cleaning the dishes

  Watering plants

  Cleaning windows

  Washing the car

  Doing yard work

  Cleaning the bathroom

  As they get a little older, you can encourage them to find some ways to make money outside your home. You can help them brainstorm new ideas, such as:

  Babysitting

  Walking dogs

  Doing yard work for others

  If your child has an entrepreneurial spirit, encourage that by helping make fliers to advertise his or her new business.

  Pay Weekly

  At this age, you can start paying commissions weekly instead of immediately. By now, your children should have already learned the crucial work-money connection, so it isn’t as important to have the immediate reward of a payout. Knowing that they have to work throughout the week but they’ll only get paid once a week teaches kids lessons in delayed gratification and patience. Besides, that’s how the real world works, right?

  In our house, every Sunday night was “payday,” so we would grab our chore charts off the refrigerator, see whether or not we had completed all of our jobs, and then Dad would pay us for the work. If I only did three of my five chores, then guess what? I got three dollars, not five. Our parents never paid us for work we didn’t do. That’s not how life works, and it’s not how our family functioned either. When we first started doing this, it was textbook. Every Sunday night, Dad would have fifteen one-dollar bills in his hand, ready to pay commissions to three eager kids. But every so often, on a Sunday night we would ask about payday and Dad would say, “I forgot to go to the bank and get the one-dollar bills, so we’ll make it up next week.” This was rare, but it did happen—even to Dave Ramsey. So parents, give yourself some grace. The more consistent you are, obviously, the better it is for your kids, but don’t stress over it if you miss one payday. This small error probably won’t send them to counseling.

  DAVE: As I look back on parenting the Ramsey kids and teaching the ideas of commission, chore charts, saving, giving, and spending, what amazes me most is that our kids still got it despite how often Sharon and I messed up. We talked about the concepts and enforced the “no work, no pay” principle, but we were far from exact in all the applications. If one of our kids messed up or broke something, we dished out grace and paid anyway. We just wanted them to get the concepts. My memory of Sunday-night payday is that we probably missed or forgot 25 percent or more of those, and yet our kids remember being taught these concepts thoroughly.

  There will be times when you’ll be too tired, on vacation, or simply distracted and forget to do “payday,” but you can always make it up the next week by talking through the chores and carefully funding each child’s three envelopes. So parent to parent, let me tell you the word here is grace—grace for the kids’ reactions to unusual circumstances and grace for yourself for not perfectly executing this plan. You don’t check every homework paper (Please tell me you don’t check every single paper! That’s a little weird.), and yet your kids will graduate and possibly even get good grades. The reason for this is that the child gets the concept of hard work and will do his or her part once you teach and model the principle. The key is to be intentional and to control the teaching and gui
ding of their character rather than to control the child.

  Envelope System for Kids

  RACHEL: This is also the perfect time to start teaching your children about what to do with the money they’re making. We’re going to suggest you have your children divide their income across three key areas: spending, saving, and giving.

  Give each child three specific envelopes: one named Spend, one named Save, and one named Give. Write those words big and bold across the envelope or let the kids decorate their envelopes however they want. Every dollar they earn in commission needs to be spread across these envelopes. You can also apply this to any birthday or gift money they receive throughout the year.

  Here’s how it worked for us on Sunday nights: I would take the five dollars I earned and put one dollar in the Give envelope (because giving always came first in our family), two dollars in the Save envelope, and two dollars in the Spend envelope. That’s the most basic form of budgeting, but it works—even for a six-year-old.

  The Spend envelope was fair game. We could use that however we wanted. It was meant to be enjoyed because money can be fun!

  The Save envelope was basically a long-term Spend envelope. I wasn’t saving for college or a house or anything at that age. My parents encouraged us to set savings goals, like for a certain toy that would take weeks or months to earn enough money to buy. As our savings grew and we hit our goal, we’d proudly take the Save envelope to the store and bring home our major purchase. This teaches your little ones about patience, goal-setting, and delayed gratification—three things a lot of adults still struggle with!

  The Give envelope was extremely important in our house, which is why it was the first thing we did with our money. By the time I was six, my parents had stopped giving me their money to drop in the offering plate at church, and I took my own money from my Give envelope. Giving his own money changes a child’s whole understanding of giving. We’ll talk more about that later on.