From a recent discussion on our Facebook page we have an absolutely brilliant concept on teaching financial literacy, responsibility and independence shared with us by one of our readers.

Our reader, Evana, describes how her and her husband started teaching their 4 year old about money. She was keen to teach her toddler a sense of value and responsibility when it comes to money. She wanted to help him appreciate what he has and to recognise the importance of giving to others.

After coming across this blog, Evana and her husband Greg decided to try the three pots method in their home.

 Evana writes;

In our house we decided to give Oliver pocket money. After researching the various purposes and arguments for and against pocket money we decided not to associate this money with chores. We did, however, ask Oliver to assist in making a Family Contribution. In our family this means doing the simple things around the house that help everyone, like taking dishes to the table, tidying up toys and helping to look after his baby sister if asked. To be honest he’s a very helpful child anyway so we didn’t think we needed to add the word chore to tasks of helping around the house.

Most of the research out there suggests the moment you add a cost or penalty to a job its value changes. Kids will begin to ask how much a job at home will pay, and all for tasks that they should do anyway. For similar reasons they may also respond by saying “I don’t need the money I already have $50 so you can do it yourself”. Overall, pocket money as a payment systems doesn’t seem to foster a sense of responsibility or ownership in the home. Greg and I decided that he would get his pocket money every week even if his behaviour was less than great.

We explained to Oliver the 3 pot system, bought 3 clear jars and put symbols on each one to represent each pot. One for Savings, One for Spending and One for Charity (Share). I think a lot of people miss the third area of money use and it’s just as important as the others.

 How the three pots work:

Charity – If Oliver was a little older we would have let him pick his chosen charity, and as he gets older we will change it if he wants to. We decided to sponsor a World Vision child, living in Peru the same age as him. We wanted to highlight on a very real level why charity is important and when we’re as lucky as we are, we need to discuss Need vs Wants with our children. He talks about his sponsor child needing books, water, housing etc., so it’s already turning out to be quite a nice and powerful lesson.

Save – Oliver is a huge Lego fanatic, we discuss which sets he’d like to buy then we formulate a plan to purchase them. We ask him to contribute 50% to the cost of the lego. Often this can take anywhere from 4-8 weeks to save up for.

Spend – We created the Oliver shop, which has a few cheaper items he can buy every couple of weeks if he likes. Usually they are small things that cost under $5 and again we allow him to pay a nominal fee.

The Rules:

Pocket Money of $5 is given every week (unless we’ve forgotten or run out of $1 coins)

$1 minimum is put into each pot and the extras are placed at his discretion.

Money placed in Saving and Charity are fixed and cannot be moved – however if he wants to shift from Spending to Savings he can.

The Oliver Spending Shop is open at Parental Discretion (this is how we say he can’t buy something if his behaviour has been awful that week)

For any gift money he receives (birthdays etc) Oliver can put a third in Spend or Save with the rest going into Oliver’s bank account.

Any damage to property, whether his own or someone else’s, Oliver is expected to make a contribution to its repair or replacement.

If Oliver elects to cancel doing a class or activity he asked to do, he is expected to pay a small penalty for loss of income.

Outcomes:

We have been doing this over a year with Oliver and I feel it’s the best thing a parent can do for themselves and their child. Oliver is now making thoughtful choices about what he wants to spend his money on. Best of all is when we go to the shops and he asks for some small toy, we ask him to spend his own money. We are happy to loan him money out and he pays us back when he gets home. Also he has the choice when out with grandparents if he wants them to buy him something or whether he wants to put the money towards his savings goal.  He is very responsible with his toys and other people’s stuff, as we have explained that his funds now contribute to cover repairs.

We don’t expect Oliver to spend all his money on everything, there are some concessions and we do buy him the odd toy here and there. What we’ve found is that it means he actually appreciates the gift again and is very grateful when given something. We also buy a lot of toys second hand especially Lego, and he understands that not everything has to be brand new to be good and it still works fine.

I actually hope more parents consider taking this approach to teaching kids about money. It took me 25 years before I understood the concept, and that’s only because my husband is very thrifty.

We both think that this idea is terrific! We are big believers in fostering independent, resilient, critical thinkers and this concept is a very clever way of enhancing those skills while also raising charitable and knowledgeable children of the world. Oliver has been shown that not every child is born into a family that has what his family has and from age four he is being taught that a small contribution from him can make a big difference in someone’s life.  That’s a beautiful thing.

When it comes to applications of maths that are necessary and useful to our lives, personal finances is by far the most important. We very much agree with Evana, the sooner children can learn that savings are the means to buying what you want, rather than using credit, the sooner they will grow to be fiscally responsible individuals. We have both taught 17 and 18 year olds who are on the brink of adulthood and it is often very dismaying that they have reached this age without any real appreciation for the difference between credit, savings, loans and the value of assets. This three pot system is such a powerful place to begin, and I think you’ll agree with us that Oliver is a lucky boy to have such proactive parents.

We love hearing from our readers, so please continue to share your ideas and experiences with us. And thank you so much to Evana for sharing this with us. I know I personally look forward to implementing the three pots method in my own household.