Mention the term ‘financial literacy’ to any young person and their primary senses will shut-down. The term has negative connotations that are linked to paperwork, complicated calculations, rules and regulations. Rarely in school is the idea of creating money ever considered. Instead, kids are exposed to debt and debt management. Outside of school, they are inundated with marketing messages that promote consumerism and acquiring the latest and greatest ‘thing’.
How can we combat a system that pushes kids into a world or credit, interest payments and mortgages? The simple answer is to ensure they have the skills to create money and can manage it. Some parents have established their own systems at home for doing just that. Envelopes and jar systems are common in households where parents don’t want their kids to fall prey to a life of servicing debt. These systems work well and form a solid foundation for acquiring wealth that enables a life of purpose.
The Dream Launcher moneybox system from The Recess Report combines the best money management ideas that parents have shared with us. It is an everyday system that is simple, fun and easy to use. Parents comment that the system is outstanding at raising questions that their kids research on their own. “My kids ask questions that I have no answers for and so we find answers together” says one parent. Another parent says that “I feel they are really listening to me now when I talk to them about money.”
The system works by providing kids with four accounts for money: Save, Spend, Give and Grow. A moneybox is provided for each account. Whenever kids receive money, they must allocate it into the four accounts. To start off with, we suggest they divide their money equally. Over time, as kids become more responsible, we recommend that they make all of the decisions in how to allocate their money, with at least 10% going into each account. When kids need to use money, it can be withdrawn from the appropriate account.
The key to the system is the Spend account. This account provides kids with the freedom to buy whatever the balance in the account allows them to. Kids quickly discover how to budget and plan to ensure they have a supply of funds for the things the want. Parents quickly become a source of guidance and advice, rather than an endless supply of money.
The question most parents ask is “how do kids get money for the system to begin with?” Initially, the money has to come from parents, grandparents and family. Some kids already have a stash of money in their piggy bank that they can use. As kids start to manage their money, they will get creative on how to get more of it into the system. Many kids stop asking for specific birthday presents for example and make a point of asking for cash. As well, kids will offer to do chores around the house in exchange for money. In this case, when parents choose to pay for chores, we recommend that kids create and submit an invoice for payment. This exercise is often enough to activate the entrepreneurial gene.
The Dream Launcher system is designed for kids up to Grade 8. Beyond Grade 8 unfortunately we find that money habits are far too established for kids to get started on the system. The ideal time to get started is when kids start asking you to buy things for them.
Parents can choose to get started with using any of these kits:
