Giving Your Kids Some Financial Smarts — The Rule of Thirds

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As a parent, there are a thousand things you need to do for your kids. From making sure they’re looked after properly, to giving them love and providing them with good life skills, there’s always something else. In fact, there’s one crucial area you might be overlooking — Teaching them to use money responsibly, and that’s arguably one of the best skills they can have.

There’s a simple way around this though — Talk to your children about money, and introduce them to the “Rule of Thirds” — Here’s how.

What is the rule of thirds?

The rule of thirds is a very simple concept. It simply means that whenever your children get money (whether that’s an allowance, a gift, “pocket money,” or something they’ve earned), they split it into three portions.

  1. The first portion is money they get to spend on anything they want, right now.
  2. The second portion is money they can save for a few months towards a big purchase. Perhaps they want a bicycle or a game console.
  3. The third portion is money they can save for a long time. Perhaps it’s money they might eventually use towards buying a house, getting married, or funding college.

The important thing here is to teach the value of saving. They get to enjoy some of the money now, but through delaying gratification, they give their money the chance to grow and can do much more with it over time.

Getting this right is essential. It’s important to explain why this method is a good approach in terms they can understand. Here are some hints on having that conversation.

Start saving early

The earlier you can have them start saving this way, the more normal it will be. In fact, if you haven’t started providing an allowance yet, why not make the rule of thirds part of doing that? If you have started providing an allowance, talk to your children about why saving for the future is important, and the reasons it’s a good skill to have.

Show them the reward of saving

It’s important for children to get positive feedback and reinforcement of their good habits. One of the best ways to do this is to show them the rewards of saving. When they have saved up enough money to buy what they want, make a big deal of it. Tell them how proud you are of them and the fact they did this themselves.

Invest on their behalf

If your children are reluctant to save themselves, why not invest on their behalf. Explain that they will still get an allowance they can spend, but that you will also put money into medium- and long-term savings for them. When they prove they can do that with their money, give them access to the accounts.

Give them a bigger allowance if they save

It can be a good idea to incentivize your kids to save. One way to do this is to offer to increase their allowance if they save some of it. For example, if you normally give your ten-year old $8 a week, offer to increase that to $15 if they save some of it. They won’t take much of a cut in spending money now, but they’ll be saving up for the future.

A final word on giving away

There’s an alternative rule of thirds — Spend, save, give. They spend a third now, they save a third for the future, and they give a third away to a good cause. This can help to teach social responsibility, and give your kids causes they care about. Donating to charity and being altruistic is good for our sense of self-worth and the sense we’re doing good in the world.

We’re here to help your kids save

Here at Litchfield Bancorp, we’ve got the perfect savings accounts for your kids. Get in touch with us today.

Laura Murphy
Branch Supervisor