It's my money and I'll spend if I want to

How much freedom should kids have with their own cash?

My kids started receiving cash as a gift when they were so small that they valued crumpled wrapping paper more than dollar bills. So, like my parents did for me, I’ve been stashing nearly all of the special-occasion cash that my 3-year-old son and 5-year-old daughter received into a savings account. I figured that when kids are that young, they don’t really feel the urge to head to Target to buy this season’s hottest toy. Plus this way, when they start begging for a bigger-ticket item or a pricey summer camp, they’ll have some money to put towards the purchase.

But this year, especially with the 5-year-old, it’s time to give her control of her dough.

Many kids and money experts suggest you divide a child’s cash into three buckets — one for saving, one for giving, one for spending. This introduces the concept that money can be used not only to satisfy our desires for the latest and greatest, but also for making the community where we live a better place. Making sure we have money set aside for a rainy day (or financial crisis) is an important goal, too, and one many of us lost sight of in recent years.

Some financial advisers advocate that parents suggest the amounts that their kids put into each bucket — 10 percent for saving and 10 percent to give away, for example. Others suggest you let the kids decide what ratio of their money goes to each pot, as long as some amount ends up in each.

If you like the concept, there are several multichamber banks you can buy for your kid, or yourself. Or be creative and make your own.

Me? I’m still debating whether the system is right for us. What’s wrong with giving young kids the freedom to make their own money choices — and mistakes? So often we shelter our kids from making imprudent financial decisions. We forget that by regretting a purchase and feeling guilt about using money selfishly, we learn to make better decisions in the future. I’d much rather have my kids making boo-boos with small amounts of money while under my watch than with thousands of dollars as young adults trying to make their way in the world.

Allowing children to make their own financial choices will also provide insight into their money personalities. Do they have a propensity to blow their entire stash in a day, only to regret the impulse buys by nightfall? Are they natural-born savers who find it difficult to part with a dime? Or, are they so generous that they decide to give their money to a friend or a charity with little prodding from Mom and Dad? The sooner they understand their money tendencies, the better off they’ll be.

As all parents know, kids also mirror what they see. Chances are you’ll influence their money behaviors, whether you mean to or not. Telling your children how to divide their money isn’t enough. Let them see you donate money to a good cause. Point out the times when you are delaying a purchase and explain why. If we really want our kids to learn balanced financial habits, the best gift we can give them is to put our money where our mouth is.

Kara McGuire is a mom and personal finance columnist for the Minneapolis Star Tribune.

Resources

Find three-chamber banks at:

MoonJar.com

ShareSaveSpend.com

Find four-chamber banks (one for investing) from moms Lori Mackey and Susan Beacham at:

MSGen.com

Prosperity4Kids.com.