Helping Your Kids Save Money

Some of us have been blessed with the finances of our parents, giving us a jump start as we entered adulthood. Many of us haven’t. Starting off with a decent nest egg and starting off from scratch can make a tremendous difference, especially when considering the effects of compound interest. When looking at it this way, there are few substitutes for an early start when considering building wealth. As adults, we accept the tools we have and build on them. But we could always make things different for future generations. We are the resources of out kids and grandkids. We can make a difference in their lives.

When I talk about the idea of providing for the future generation, I’m not talking about handing over a bag of money when your kids turn 18 so they can go buy pet elephants, cars, clothes etc. until it is all gone. I believe if the kids are involved in building their own future wealth, they’ll realize it is a long process and will be financially aware when stepping out on their own.


A system for teaching your children financial awareness while building wealth is outlined in the book, Safe Strategies for Financial Freedom. The authors show how to help kids become financially free in their adulthood while teaching them to be responsible for their own financial wellbeing.

Safe Strategies for Financial Freedom[i] introduces the Two-Box System.™ The two boxes comprise of one box for spending money, and another for their long term savings. To summarize, you first introduce the idea of getting an “allowance” of a few thousand dollars a month in the future. This should get their attention.

The system is a method of saving and investing the money they receive. Since babies don’t have spending needs, all of the money they receive will be saved in their savings box.

child counting coinsWhen your child reaches the age of 5, they will start to use these two boxes. Whenever they receive money, they will place half in their spending box and half into their savings box. This money would come from allowance, gifts from grandma, paper route money, chore money, etc. Let’s say you give your child $10 a week for their allowance. This means they would have $5 dollars a week saved in the savings box, and the other $5 to be placed in the spending box to be used for buying spending on toys, candy, video games etc.

As a parent you will regularly take the money from the saving’s box and buy bonds, stocks and mutual funds in their names. Let’s assume these investments earn an average of 10% a year, based on the idea that the markets have moved an average of 10% annually in the 20th century.

rich babyLike I said before, babies don’t buy. So as a baby (age 0 – 4), the kids will save 100% of all the money they receive. Starting at age 5 your kids will begin to save half of all the money they receive. This shouldn’t be too difficult either, because 5 year olds aren’t big spenders. They eat and live for free. The practice of saving 50% will continue until they go to college.

Once in college, money is harder to come by, so they will save 10%.This shows them that even while money is scarce there is never an excuse not to save.

When your children start to work and are out on their own, they will save 15%. By this time, they will have developed the habit of saving, so it will be fairly natural to save something.

When they get married, they’ll save 15% of their income as well.

When they have children their savings will once again be 10% of what they are paid.

Assume your kids save $730 a year until age 5, $365 a year until 12, $650 from 13 – 14, $2600 from 15 – 17, $780 in college, around $800 after graduating, and so on, while earning 10% on their investments a year. On average your child will have somewhere around $500,000 saved by the age of 36. That would give them around $50,000 a year in passive income (at an annual rate of 10%). That would allow them to truly find a career path that makes them happy, rather than jumping to the first job that will pay for their overstretched lifestyles. Saving on their own would teach them that saving takes long, and isn’t something that should be squandered.

If they earned 15% a year for the same period, they’d have 1,202,631 at 35. If the rate is 20% the number would be over $3 million.

The numbers will of course vary based on how much your children receive in childhood as well as what they earn in their jobs. The point is, if this plan is followed, they will be well prepared, and well trained as they enter adulthood.

baby bottle

Posted by: Tahric Finn


[i] Tharp, Van K.; D.R. Barton and Dr. Steve Sjuggerud (2004). Safe Strategies for Financial Freedom. McGraw-Hill. ISBN 0-07-142147-5.

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  1. This post is really sweetest on this notable topic. I harmonize with your conclusions and will thirstily look forward to your incoming updates. Keep posting good blogs. Thanks.

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