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Welcome to #AskTommy, where I answer your money questions so that you can gain the courage and confidence that you desperately want and need with your money.

Today’s question comes from Jeannie, and she writes:

“How would you explain the difference to a 12 year old between spending money, saving money for a special purchase, and saving to SAVE ? #RainyDay

We just had this conversation last night, so would love your thoughts on prepping the younger generations. :)”

Here’s my answer, Jeannie 😎



Transcript: How do I teach my children to save?

Jeannie, This is such a great question and I love it. Because, as we grow up, our first memories about money, shape how we manage it when we become adults.

This is our money story.

And the foundation of my money story is that I learned I could do anything in my life, as long as I paid for it.

Our money habits can help us soar to huge successes in life or keep us running on that treadmill, with success always just out of reach.

What I love that you’re doing right now is trying to teach your child good money habits, but it seems that you’re having a hard time making it relatable to them. And that’s okay, because that’s what I’m here for.


Start by Introducing Goals

What I recommend is, start by Introducing goals.

I don’t know how you do things in your family, but I make my kids work and pay for everything they want, minus what I should be taking care of as a parent. So when they want something like a game, or a toy, or even some candy, they know they have to save and pay for it.

Remember what I said about the foundation of my money story?  That I learned I could have anything I want, as long as I paid for it? That’s what I’m trying to teach them here.

And because of that, they’re pretty good savers. They even have retirement accounts at 10 years old.

So in my family, we use an envelope budgeting system. My kids have 3 Envelopes labled, “SPEND”, “SAVE”, and “GIVE AWAY”.  When they earn money, they put split it up as they like into these envelopes. And they are free to use it as they see fit.

Spending is for more of immediate gratification, usually related to fun.

Saving is for those bigger purchases, like you mentioned.

And Give Away is for charity, birthday gifts, and such.

I believe the envelope system is so effective for teaching your child how to set goals by creating different buckets of cash. And by having them choose where to put cash they earn, they are also building their decision making muscles.

How you can introduce this to your child is relating it through something relatable, like a “Would you rather game”, which my youngest son Tyler is so fond of.

So what I would say to your child is this:

If you were throwing a birthday party for bestest friend, would you rather throw it all together at the last minute, and maybe having it not look so nice or being as fun?

Or would you rather plan a fun birthday party, where you have enough time and money to make it look so amazing. And everyone had fun and talks about it for a long time?

You’d probably opt to have the fun birthday, right?

Planning is another word for having a goal. And how you plan a fun birthday party is by imagining what a fun birthday party would look like, and then create all the little steps that need to happen for it to be fun.

You should do the same thing with your money.

So many people spend, spend, spend, and then wonder why they don’t have any money for the things they really want. If they only had set clear goals, created the steps to achieve them, and worked on those plans as faithfully as they watched Teen Titans Go or played their video games, they’d be a whole lot happier.

Does that make sense?


So what your teaching your child here is that they can create goals that will achieve their desired financial results.

But that’s not enough alone.

Making Good Money Decisions

Next thing is to teach them about making good decisions with their money. And that can be difficult for them, just as it is for us as adults. Because that decision is 90% emotion and only 10% math.

So here’s what I would say:

Sometimes you have to sacrifice what you’re dying to have now for, what you really want — but can’t have –until later. And sometimes the best choice for you will be to disappoint a friend.

If you did everything you could to put plan a fun birthday party, but you used up all your money in your “Give Away” envelope, and you want extra balloons, or extra activities, you have to make a choice.

Do you start taking money out from your other money envelopes of “Save” or “Spend”? While it might make your friends happy, you might be disappointed later when you don’t have enough money to have fun, yourself.

This will teach your child to be mindfully deliberate about spending decisions. And this will be a crucial foundation when they enter their teen years, where they start dating and want to impress their boyfriend or girlfriend.

And the last part is where the rubber meets the road and where interesting things start to happen. And that’s by creating a spending plan, where our envelope system works.

By create an envelope for money to spend, money to save, and money to give away, I’m providing my kids a road map that will guide them to their destination: success.

Whatever way you decide to do this, you want to detail exactly how your child is going to use your money to pay for things they want.


I want to hear from you

Do you have a pressing question. If so you can drop it in the comments below or ask me privately. If it’s good enough, I’ll answer it and mention you on my next Q&A Tuesday on TommyTV.


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