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.

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.