Piggy Banks – Why You Need To Toss Them Immediately

How many of your kids use piggy banks?  Ok now think about your family budget.  Do you just toss all of your money into one account, or do you divide it into chequing, savings, retirement, investment, emergency funds? If we want to teach our kids how to segregate money into different accounts, we should help them, and we should help them early.

Stop Using Piggy Banks

I don’t know the historical origins of a piggy bank. But regardless of where they came from, I don’t see how pigs have anything to do with money, and I think piggy banks are a terrible way to have kids store their money.

First off, you can’t put in bills easily, and if you are Canadian, some coins won’t fit either. Once the money is in, you have no idea how much you have. Which one of you would keep your money in a bank if you couldn’t see the balance? Then either the bottom comes out too easily, and money rains down on you, or the hole in the base is too small, and you can’t get anything out.

Bad at deposits, balances and withdrawals? Banking shouldn’t be this hard! Toss those piggy banks out!

A big part of money management is compartmentalizing the money you have. I’m sure you do this all the time. I have a paycheck coming, part of it will go to rent, some to groceries, and some to entertainment.

That compartmentalizing is easy for us because we have had practice. But even with practice, we still like to put up barriers to the different compartments. This is why we have savings chequing and retirement accounts.

We need to do this because money is money. The money in my savings account is the same as the money in my retirement account. The only way to distinguish them is to set up some compartment, or in this case, accounts to separate the two. In economic terms, they call this fungibility.

So why are we not doing this with our kids?

A Better Way for Your Kids To Keep Their Money

What is the simplest way to delineate money for different purposes? Put it in different places.

When I started my son’s allowance, I found three clear jars with wide openings and twist on lids.

We labelled each jar.
Save – this is equivalent to a savings account which he uses to save up for something special.
Spend – This is his chequing account for buying smaller things that come up
Give – This is his donation account that he uses to be philanthropic.

Why Clear Jars.
Deposits/Withdrawals – easy to open and put money in or take cash out
Balance – easy to see your wealth increase and decrease at a glance

By keeping his money in three jars, he is building the habit of budgeting and accounting. By using clear jars, he can keep a tally of what he has. It is not hard for him to get a statement of his accounts with a glance. And by making the jars easy to open and access, it makes his money easy to access. The idea of having to find a hammer to access your money might sound like a wise saving strategy to some, but trust me,  it is not.

I love the three jar method. I think it is simplicity at its finest. How better to teach accounting without having to teach accounting?

Toss those piggy banks and let me know if you have tried this method and how it is going for you.

What is money?

Have you ever tried to explain the concept of money to a child? Possibly along the surface,  most children have some sense of what money is at an early age. Try this with your little one. Ask them what money is?

My guess is that your child would respond with something along the lines of “Money is something that I/we use to buy things that I/we want.”

While that definition is a sufficient starting place, it is certainly limiting if you want your child to have a firm handle on personal finance. When we look closely at that definition, it only talks about the spending of money. Additionally, it only just touches on why we need money, but it leaves me wanting for more.

How To Define Money

Here is my definition of money, and I would suggest you use it with your child too.

“Money is something that we trade for things of value.”

This definition is general enough that it captures new digital currencies, as well as, the well-established notes and coins that we are all so accustomed to using. I also like it because it uses the word “trade” rather than “buy” or “sell.”

Trade Vs “Buy and Sell”

When you buy or sell something for money, you are essentially making a trade. We must trade something to acquire money. We could sell something for money. But if you are like the vast majority of people, you likely make a living by working, not by selling something. When you go to work, you could say that your employer buys your time and your skills, or you could say you sell them your time and skills. Both of those statements are factually true. But I think it is more apt to say you trade your skills and time to your employer for money. The use of the word trade captures both parties’ motivations. You want the money, and they want the time and skills. You both come out getting what you want.

Similarly, when you go to the store, you trade the money you acquired to buy the food, and clothes your children eat and wear. No matter what side of the trade you are on, if you are buying or selling, it is always a trade. I feel like trading is a concept and term that children can relate to intuitively. From a young age, children start the practice of trading. They trade snacks, cards, toys, books; you name it, they trade it.

Needs vs Wants

The other reason I prefer this definition of money is that it better addresses what we trade for money. We need our children to be able to discern the differences between needs and wants. To do that, we need to broaden what they think we use money for. If they think money is only used to acquire what we want, it will be harder to cement in the differences between wants and needs. That is why I prefer speaking about money as a means of acquiring things that we value. Those things can be the things we want, but it can also be the things that we need, such as food or clothing. By speaking about what we value, we can more easily talk about what we prioritize.

How do you feel about my definition of money? Do you have a better description? Did your kids throw you for a loop when you asked them what money is? Let me know in the comments.

Practice Gratitude

I recently wrote, “Are We Rich?“.   I want to dive deeper into part of that post.  Giving is a topic that has come up numerous times. I genuinely believe that giving helps you feel more wealthy, and there is data to back this claim.

I want double down on this topic — the practice of gratitude.

As mentioned in my post, feeling rich or poor has a lot to do with comparing ourselves to others. That feeling is also tied into how we categorize our needs vs our wants. For example, if we feel like we need more stuff, we will often feel poorer.  It is especially challenging for our children who are exposed to so much marketing.  Being surrounded by friends who have the latest games, name brand clothes, or the newest wearable tech only compounds these feelings of lack.

How do we combat that feeling of need?   Gratitude.  There is a growing body of data that shows that gratitude changes the mind and body in positive ways.

Enter the Practice of Gratitude

To combat that feeling of “I need more”, it is helpful to reflect upon how fortunate we are.    I don’t journal often, but when I do, I start by writing about what I appreciate.  It unusually revolves around family and friends, but not always.  I will write about how I’m grateful for my home, our vacations, and the good fortune I have had that day or week.

You may have taken the time to think about where you want to be 10 years from now. But how often have you thought about where you had hoped to be ten years ago?  When you reflect, you may find that you have a lot to be grateful for today.  It is through this practice of reflecting on our good fortune, that hopefully we can remember how much.  In time, this habit replaces the constant thinking about how much we want or do not have.

Have your Kids Practice

For my kids, we do this at bedtime.  As we are talking about our day, one of the questions I ask is, “what are you grateful for?” What I enjoy about this moment is that we get to hear what our kids are thinking. We listen to what they appreciate about our actions towards them. “I appreciated that you played x with me” is always a heartwarming one. We also get to use this moment to tell our kids the things that they do that we appreciate — the things we may have overlooked in the moment. “I appreciate that you cleaned up after breakfast without me having to ask “, for example. We also get to show them that we’re grateful for our connections to our friends and family and the material things that we have in our lives.

I can’t say that so far I have noticed any change in their level of desire for material things, but I’m hoping with time it may.  The hope is that I can point back to some of the things that they mentioned in their night time reflections when they start talking about how much they want/need something new.   Good luck convincing me you are in desperate need of something if just we talked about all the things that you have in your life for which you are grateful.

Do you practice gratitude journals or gratitude reflections with your kids? If you do, have you noticed any difference in their level of desire before and after you started? Have you noticed a difference in yourself? Let me know?

Saving Targets

I had an interesting conversation with my son the other day. I was under the impression that saving was not a big deal for him. When we started his allowance a few months back, he was saving for a big-ticket item, and he had no problem doing so. He would diligently put money into his savings jar weekly. He also put all the money he got from his birthday and other sources into his savings as well. Seeing how keen he was to delay spending to reach his savings goal, I felt like he had the concept of saving in the bag. On my list of personal finance lessons, I was ready to put a big checkmark next to savings and move on to the other stuff.

Pilfered Savings

Then my son threw me a curveball. Our neighbourhood holds an annual yard sale, were multiple streets will coordinate to put out their wares on the same day. It is a great time to find some bargains, and my son knows it. He brought his cash with him, and I thought nothing of it. It was only after the yard sale that I realized he had pilfered his savings jar to go treasure hunting in our neighbours’ stuff and had spent both his ‘spend’ and his ‘savings’ that day. I was a little surprised that he would dip into his savings, considering how steadfast he had been in saving in the past. When I questioned him, he made it clear that he didn’t want to miss out. He wanted to make sure he had all his money with him. That is some solid logic that I couldn’t argue.

When I asked him about depleting his savings, he seemed nonplussed. And that is when I realized my error. When we started the allowance, I asked him what he was going to save for. He created a savings target, a goal. When he reached that goal, the savings jar became a defacto spend jar. With no goal, there was no reason not to dip into his savings. The saving habit was natural for him when h goal was in sight, but once reached, it no longer had a purpose. Why not spend what is in your savings if you are not saving for anything?

Set a New Target

Luckily for us, there is no end of items that my son wants. We came up with a new savings goal. And he is back to his old habits of keeping his save and his spend separated.

Spending savings is not money management, but it is an easy habit to get into. And I feel like goal setting is a great way to keep the two buckets separate. Getting into the habit of setting a target to save will hopefully translate one day to getting him into the habit of having an emergency fund, a retirement fund, and all other savings goals that go along with adulthood.

Wash and Repeat

It was an excellent reminder to me of why I am doing what I’m doing. These lessons that I’m writing about, and trying to pass on to my kids, don’t come quickly, they require re-enforcement. So, while in my head, my son had grasped the concept, learning these concepts and forming the right habits take time, and repeated effort. Luckily we are working on it. And I know he will get it.

If you have a child who needs an extra incentive, take a picture of your child’s savings goal and tape it to their save jar.  Now they will have a visual reminder of what they are saving for.  This will help them keep their target in mind.

Early Lesson’s Learned

Here is a quick report back on some of the early lesson’s my son has learned from being able to manage his own money.

Quality-Cost Connection

When my son first started to have his own money, he was eager to make trips to the dollar store. He would spend whatever little bit of money he had and feel very little remorse when his new toys had a five-minute life span. Now that he has his own money, that has changed.

When he asked to buy toys with his birthday money, he was unequivocal; it had to be Toy’s R Us. When I asked why he told me that he hates the dollar store. “Their stuff doesn’t last.” I’m happy that he has made this early connection. ‘You pay for what you get’ is a valuable lesson that I’m so glad he has learned early.

Now I don’t want him to miss out on the need to be frugal. I plan to show him that there are some items where the dollar store is a fine place to shop, but for the intricate toys that he likes, the dollar store is not the best.

Delayed gratification

“I use to go the store with my money and if I didn’t find something I wanted I had to buy something right away.” – my son

Saving is hard. It is hard to put off getting something today in hopes of getting something better tomorrow. And before my son received an allowance, I think it was even harder. When you are uncertain when you are getting money again, it is hard to come up with a plan to save and stick to it.

I’ve been lucky to always work in jobs that pay me regularly. I have a special appreciation for the contractors and freelancers out there who budget with irregular paydays.

The lesson that you need to save for the things you want is so powerful. My son would often go into a store with his money, look around for what he could afford and maximize his returns. While that is not a bad strategy, it often left him disappointed. There was always that one thing, just out of his price range that he was not willing to save for. Now with a steady income, he is more willing to put off that purchase and wait. And he is much more satisfied with the things he purchases.

Making a Difference

I wrote about the charitable work my son has done over the past year. His charitable efforts have let him know that while there are significant problems in the world, he can do something to help solve them. I have also seen the pride he has in himself for making a difference. How can you not feel good helping people?

We’ve enjoyed the conversations we’ve had around the ways he can help people less fortunate, such as giving away his toys and books that he no longer wants, or giving more money to people or charities that he feels will make the most impact.

He has also made the connection that giving can feel good. I was surprised when my son used some of his birthday money to buy his sister a small gift..just because.

How has your journey been going? Let me how the conversation has been going. What have their takeaways been? Are they making the connections you had hoped? Any unexpected realization? Let me know in the comments.

Things My Parents Didn’t Tell Me – Credit Debt

I’m very fortunate to have two loving parents who gave me more than I needed to succeed. They cared and provided for me both physically and emotionally, so this is not a condemnation on them by any means. Also, I don’t want anyone to think that I’m hung up on things that happened 20-30+ years ago. I am not. I own every step I’ve taken on my path.

What this is, is an honest look at some of the things that I wish I would have understood earlier in life. “What my parents didn’t tell me” is a catcher label than “Things I wish I learned sooner”. It also has the bonus of taking us back to when we were children, and still forming our understanding of the world and the way it worked.

My Debt Story

So what is it that I wish I had learned sooner? For me, it would be Credit and Debt. If you borrow money, you need to repay it. It seems so obvious now that it is almost ridiculous to write it out. And yet, I didn’t do it when it mattered. I also didn’t realize the severe ramifications of not repaying my debt, or maybe more critically, of not paying it back on time.

Specifically, I’m talking about credit cards. I got my first credit cards when I was living on my own around age 18 or 19. At first, I didn’t use them much; they were for emergencies, right? But then I did…for everything. They are so convenient, and who has cash on them anyways? Big or small purchases, it didn’t matter; and since my savings balance didn’t move, it felt like free money. But then the minimum payments started getting higher, and I thought, “Maybe I’ll pay this one a little late. Is MasterCard going to struggle if they don’t get my minimum payment on time?” You see where this is going.

What I Didn’t Know

I didn’t realize what I was doing to my credit score.

It’s crazy, right? How is it possible that I got thousands of dollars in credit without anyone sitting me down to say, hey this is how this whole system works. No one told me what a late payment would mean, or more accurately what lots of late payments would mean. If I’m honest with myself, if someone said “Hey Clif, you know you are not going to be able to get a car loan when you are done school, because you are paying your credit card bills late” I would have said, “I’ll walk”. But the fact remains,  I was given a credit card without anyone telling me:

  • A $2 pack of gum bought with a credit card will cost you $50 when you only pay the minimums,
  • Paying on time is just as important as paying your bills at all, or
  • Defaulting on a credit card could keep you from buying a car, a house and in some instances from getting a job.
What Will I Teach My Kids

So what does that mean now? Well, for one, I plan to explain the credit system to my children before they are living on their own. I will teach them how purchases on credit card are a loan. I will teach them that paying your bills is just as important as WHEN you pay them. They will learn that their credit history starts from their first bills to their last credit payment. And that information will be used to determine interest rates and creditworthiness for the rest of their lives (or seven years, which seems like a lifetime when you are in your twenties). But more important than any of that, I want to get my children into the habit of paying back.

Lend Your Kids Money

I believe the one thing that would have changed my actions as an adult, even more than understanding the system, is if I had developed the habit of paying loans back.  I didn’t owe anyone anything until I got my first credit card bill and student loan, both when I was about 18 years old. When I started borrowing, I was not used to paying anyone back. And it was easy for me to think, no need to pay this back now.

Some people would never consider paying a bill back late. They are born with that sense of urgency when in debt, unfortunately I was not one of them. I want to build that sense of urgency into my children. I need to create repayment habits in my children through actions.   And the only way to make that habit is to lend my kids money!

That’s right; I want you to lend money to your kids too. I’m sure I’ll get some push back on this. “Advances on allowances will mess with the concept of saving.”  I respect that, but I think just like there are times you use credit to get something now rather than waiting, the concept of credit and debt is something you should incorporate into your child’s money practice.

Lending in Practice

Here is what I have done. If I go out with my son to buy something with his allowance, I do my best to set the expectation that the item he wants to buy will be purchased only with his money. He should be going to to the store with all the money to buy the item, but it will happen from time to time that something else catches his eye that is more expensive, or he forgot the tax (I make sure he pays the tax).

In those instances, I tell him I will lend him the money, but as soon as he gets his allowance, or whenever he gets money the first thing he needs to do is pay me back. I take the receipt from his purchase, write an IOU on the back, and have him sign it. I will not lend out more than one week’s allowance since my objective is not to get him into debt trouble. That is his credit limit.

Here is how it played out the first time I did this. I lent my son an extra $4 a few weeks ago. Right before his allowance, he was given $5 for his birthday from Papa. I will not lie; I felt conflicted telling him that he had to pay me back using his birthday money, and I will also let you know there were tears when he paid me back. But I believe a lesson was learned. And I plan on lending to him again in the future.

How are you teaching about Debt and Credit

Debt and credit are big on my personal finance curriculum. I would love to know if you have any other ideas on how to teach our kids about this important concept. Also, I want to make “What my parents didn’t teach me about personal finance” into a series. I would love to interview you, yes you, the one reading this, to hear your finance journey. You can remain anonymous, but I think we all have important stories to share. Let me help you share yours. If you are interested reach out to me: info@cliftoncorbin.com

Lastly, a lot of this post assumes that you have a good handle on how credit cards and the credit system works. If you don’t, I would strongly urge you to read up on them. I will go into more detail on credit cards in future posts, but if you feel like you need something now, email me and I will send you some resources.

Who Gives On Their Birthday?

A few weeks ago, I became the proud father of a seven-year-old. For those who don’t know my little guy, he is fantastic. I think I once heard Obama say that he doesn’t know a parent that doesn’t brag on their kids, and I’m no exception. That is not to say he doesn’t give us a hard time, or that everything is rainbows and butterflies.  But for the most part, he is a great kid. His is also surprisingly sensitive to the plight of the homeless. I say “surprisingly” because he is a tad obtuse in most instances where empathy is warranted. But the homeless affecte my son severely.

My Sensitive Son

A while back we saw a man asking for money outside of a store, who appeared to be homeless. After we gave the man every cent we could find in our car, my son was beside himself for a few weeks worrying about this person’s wellbeing. He would continuously ask what more we could have done for him.

To provide my son with some comfort and also to put all that empathetic energy to good use, his mom tried to find ways they could help the homeless in our community. Her first thought was to create care packets for the homeless we see.  While the idea was not a bad one, it would have forced them to makes assumptions about people we do not know. Do they want a toothbrush? Maybe, but maybe not. The next idea was to volunteer at a soup kitchen or a shelter. Unfortunately, many of the places they found did not want children volunteers and were requesting financial donations.

Fundraising

That left us with donations and fundraising. We didn’t love the idea of fundraising for my son. Giving money to a charity can feel three steps removed from the impact you want to make. When my son helped the man outside of the store, he made a connection — one person helping another. A moment of empathy met with a moment of gratitude. It is harder to make that connection when you do not get to see the impact of your actions. Similar to how I feel you need to teach children about money using cash, I feel like the effect of giving is more powerful when you can see who you are giving to. But driving around town giving money to people outside of stores is not the only way to help.  I think most would argue it may not be the most effective either.

So while it was not our first choice, it was a chance to talk about another facet of how money works. Here is one reason why I think giving should be a part of any personal finance lesson we teach our kids. A big part of explaining how money works is teaching our kids how fiance works in general. Not just in our home but in organizations, and not just for profit organizations but the not-for-profit world as well. There is an entire sector that focuses on solving our big problems, and many of the organizations in that sector are not-for-profit. Our children should be aware of them and how they work and how most of them are funded. Many are not financed by selling products or services, but by fundraising.

So my son and his mom fundraised and participated in the coldest night of the year walk, this past winter  And then for his birthday my son held an ECHOage party.

ECHOage

ECHOage is a company that has managed to do the one thing I’ve always wanted to do, but couldn’t. For years I’ve wanted to tell people please don’t buy my kids anything. Just give them money and let them buy something.  Or even better, let us put the cash in their education accounts. But I’ve been told that asking for money is “uncouth.”  It probably is, but I have never claimed to be “couth.” So I’ve kept my mouth shut and watched evermore toys enter the house, only to be broken or forgotten about a few weeks after the big days. With ECHOage, it is now acceptable to ask for money. With ECHOage, you ask for money from your guests. A portion (in our case half) goes to a charity of your choosing (for us it was raising the roof).  The other part was pooled so my son could buy one big gift. Buy linking the ask for money to a charitable donation it is now acceptable in our house to ask for money instead of gifts. Genius.

Thanks to the generosity of our neighbours, his friends, and our family, between his birthday, and the walk in the winter, my son has been able to raise just over $500 in one year to help the homeless. I’ve said it before, but I couldn’t be more proud of him. We hope to keep the giving spirit going in him. And as he gets older, we will try to match the donations with volunteering, because we feel like both are important.

Check out ECHOage and give it a shot for your next party. If you do, let me know what you think. And feel free to use the comments to brag on your kids too. Really, I want to know.

The Gandalf Doctrine: Keep is Safe Keep it Secret.

I love the innocence of my children.  Watching them play carefree is one of my greatest joys.  I truly hate to take any of that innocence away, but when it comes to personal finance, innocence is not the values that I would want to encourage.

As I watched my son walk into the store this past weekend to buy his new Beyblade with his saved allowance, I was filled with pride.  But I was also a little disturbed to see him holding his cash in his hand as he inspected the wears.  While it was innocent enough, and I wasn’t afraid some thief would come up and snatch his money in Toys R’ Us, it was an excellent chance to impart the Gandalf Doctrine on him.

Your money is yours to have until the moment you decide to exchange it for something else I told him.  Up until that moment, it is important to keep your Money Safe and Private (for child safety reasons we have a strict no secret rule in our house, so the term I use here is private).

As I told my son, how much money you have is no one’s business but your own. And you are under no obligation to tell anyone how much money you have.  Nor do you have any right to know how much anyone one else has.

I reminded him that there are people in this world who would not think twice about taking what is not theirs.  And for this reason, he must at all times keep his money somewhere safe.

I’m hoping this will be a good jumping off point to talk to him about:

1. No one has the right to tell you what to spend your money on
2. Where are safe places to keep his money

He took what I said to heart for the time.  And while I am sure at some point he will forget the message, and I will have to deal with a misplaced dollar or worse a stolen bill, that too will be a lesson well learned.  Hopefully, he learns the lessons now, while his money is for “Beys” and not rent.