Kids and savings

Getting my son to develop a regular savings habit is important to me. If you start out with good habits, chances are you will continue them, because habits are hard to break.

Now, I already give my son an allowance. He gets $15 twice a month, plus lunch money every week when school is in session. I wanted to give him this money so that he would have a chance to learn to manage and budget money. He also earns a little bit extra each month by doing a chore that we would otherwise pay someone else to do. He gets money from relatives for things like birthdays and holidays too. So he uses all this money to pay his cell phone bill, go out with friends, buy lunches, snacks and gifts, save for a car and for college, etc. He does a good job with it too.

But I felt like there were a couple things missing: long-term savings and retirement. I told him the story of The Wealthy Barber, and he seemed interested. He was especially interested in the results of saving regularly. (He wants a lake house with a boat when he gets older too, just like the wealthy barber had.)

So I made him a deal. If he would agree to save at least 10% of the money he was earning now, up front, for long-term savings, and then add an additional 10% for retirement when he got a job, I would increase his allowance to $20 twice a month. He'd also immediately come out ahead with that deal.

He thought this was a good idea and agreed. So I set up an automatic savings plan for him with ING for the 10% of his allowance, and we agreed that I would transfer 10% of the variable amounts that he makes manually. (He would do it, but for some reason when we try to do that using his login, it doesn't work. I think because he is a minor.)

He agreed to start by funding an emergency fund. I told him that usually it should be 3-6 month's worth of expenses, and so he should probably aim for at least 3 in there. He said he may as well do six. Six months of expenses for him would be close to $300. At first he wasn't sure why he needed an emergency fund, since his money was coming from me and it wasn't like he could lose his job. I asked him what would happen though if I lost my job and couldn't give him his allowance, and so he saw the point of it. I'm happy that he is making smart choices, and willing to listen to all my money talk.