While adults generally understand the need to save, kids see money as a means to buying things. This is where parents can use an allowance to guide their kids. Cummins mentions the three-jar method, which is a widely used method of early budgeting.
How it works is you lay out three jars: one labeled “spending,” one labeled “saving” and one labeled “giving.” Then have your child split their allowance evenly in those three jars.
Some parents prefer a two-jar method, which includes just spending and saving, but the general concept is the same.
This not only teaches your child the very basics of budgeting, it also shows them the power of saving. At the end of the year, your child may have a relatively large amount of money saved that they can spend on something they’ve been eyeing for a while or roll it over into the next year.
Raffi Bilek, a social worker with Baltimore Therapy Center agrees with this method, stating, “Having children practice distributing their money responsibly and with an eye to the needs of others is a great way to help them develop a good relationship with money as adults.”
Cummins increased the power of this method by installing compounding interest on her kids’ savings. As her kids left their savings untouched, Cummins gave them 5 percent interest compounded daily. This not only taught them the power of saving, but it also incentivized it by giving them interest.