Planning for our children’s future: The financial final frontier

Personal finance consists of several big areas, and I’ve tended to tackle one at a time so I can put all my money and energy toward it. As I’ve written about in the past, I roughly divide the stages of taking financial control into three areas: the present, the past and the future. The first necessary step is getting your present budget under control; making sure you don’t spend more than you bring in. The second is cleaning up debt created by  past actions, such as credit card or student loan debt. And the third is securing your future, which I’ve mainly defined as saving for retirement. (I also consider paying extra to the mortgage in this category, although that could also go under the “clearing up debt” category.)

But there is another important aspect of the future to consider, for those of us who are parents: securing our children’s future.

The obvious first step for many is to save up money for their children’s college tuition. And while I agree this is important (and something I’ll likely start to tackle in the next couple of years), an even more important step that not as many people seem to talk about is making sure your children are financially literate.

College tuition is still rising, and kids are graduating with more debt than ever. So having money set aside for college tuition is no doubt extremely smart and valuable to kids. But if they don’t know how to manage their own finances by the time they graduate from college, it really won’t matter whether they have $0 in student loan debt or $50,000.

So even while I’m not yet saving for their college, I’m trying to make talking and thinking about money part of my kids’ everyday life. I never hide a thought about money from them, whether it’s weighing whether or not to buy something on impulse, talking about how we saved up to make a planned purchase, or explaining that keeping the water running costs us money.

I also tried to start giving my older child Astrid an allowance beginning at age 3. I kept it up for a while, always having her divide her $3 into three areas: $1 went into a jar for donating, $1 went into her piggy bank for saving, and $1 into her wallet for spending.

However, I soon found out that cash is just another toy to kids who don’t truly  understand its value yet. The money inevitably found its way out of the three areas and got mixed together, along with toy money and other random toys. So I eventually stopped giving her an allowance and decided to put it off until she understood money a little better.

I still don’t think she’d be able to resist playing with money, but I did want to start giving her an allowance. So when I stumbled across the website ThreeJars.com, I was thrilled. This site is a perfect way to still give the kids an allowance that they can easily access as cash, yet keep that cash out of their rooms so it doesn’t get played with and possibly lost.

The site lets you set up something resembling an online bank account for your kids, though much simpler and more visually appealing.

ThreeJarsChild

You can set up automatic deposits of their allowance and divide it into the three areas of spend, save and share (donate) in whatever ratio you prefer. You can even have the site calculate interest on the money. The parent login gives you a view of all your children’s accounts so you can change contributions at any time:

ThreeJarsParent

What differentiates it from a regular bank account, though, is that you’re not actually depositing money into an online account. You’re responsible for keeping the money for your children. In essence, you’re the bank.

So every week I take out the cash for their allowance and put it safely away in a hiding spot in the house. Their ThreeJars account automatically adds that amount weekly. When the kids want to spend their spending money, I’ll give them the cash and help them “withdraw” it from their online account. Every once in a while I’ll put actual money into their real mutual funds and “withdraw” that from the “save” jar in their online accounts. And I can help them donate money online using my own checking account, then deposit the corresponding cash and “withdraw” that amount from their ThreeJars account.

I’ve shown the account to the kids and tried to explain it. They seem basically uninterested in this allowance that’s basically just a number on the computer screen. I’ve decided to keep doing it and reminding them about it occasionally in the hopes that someday they’ll become interested in it.

And I think they’re more aware of it than I realize: We overheard Astrid talking to one of her little friends about where she was going to put her tooth fairy money, and she said, “I have a bank account on the computer.” So I guess she was listening after all!

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