Teach your kids how to save with the 10-10-80 rule
Six years ago, Lisa Tukalj realized her young sons needed to learn the value of a dollar.
"I noticed they always wanted to spend my money, and my youngest son always wanted a stuffed animal when we went to the store," says Lisa, 44, a student, family and community outreach coordinator for a school district in Jackson Township, Ohio. "I couldn’t stand throwing money away on dust collectors."
Recently divorced, Lisa decided to implement a saving system she’d learned about at a financial planning seminar.
She gave Weston, now 11, and Bobby, now 10, each three envelopes, which they used to follow a simple money management rule.
Under the 10-10-80 rule, you save 10% of your money and tithe 10%. The rest — 80% — you can do with as you please.
Since then, the boys have used that rule for all of the money they've received for allowance ($20 every other week), good report cards, holidays and birthdays.
"I match what they have in their investment envelopes," says Lisa, who notes that Weston and Bobby each have a custodial account and an education fund. To date, the boys each have saved about $2,000.
The 10% the boys tithe goes to their church, a charity or other cause like the room the family sponsors at a local homeless shelter.
If her sons want to save for something specific, Lisa creates a fourth envelope. Any money that gets set aside here comes from the 80%.
Weston and Bobby have used that fourth envelope to save for an iPod, an Xbox and even a trip to Walt Disney World.
Lisa told them she wouldn't pay for another Disney trip (they'd visited before), but only for a vacation to someplace new. She relented by agreeing to pay for the airfare and her expenses if they saved the remainder.
"Never did I think they would be able to save for a trip for both of them, but they did," Lisa says. Plus, "they did a really good job making sure the trip was affordable."
Weston and Bobby researched when would be to cheapest time to go — weekdays, as it turns out — and set about saving $800 for the hotel, food and basic park passes without any add-ons.
A side benefit, their mom says: "The boys learned the gift of patience" as it took the pair nine months to save the needed cash.
They recently started a fourth envelope for a television and a fifth envelope so they can travel to London and Paris as student ambassadors with the People to People Program. Aside from saving their allowances to pay for the pricey program, the boys will be responsible for fundraising efforts to offset the costs.
Lisa believes her sons are more conscientious about what they spend their money on because of the envelope system.
Her younger boy, Bobby, no longer asks for advances on his allowance, which he once did for toys that his mom considered to be a waste of money.
Lisa still buys her sons what they need and sometimes stuff they want. She believes the envelope system has made them more appreciative when she does spend money on them — even for typically unexciting items like school clothes and shoes.
During a recent trip to get what they needed to start the school year, "the boys gave me a big hug and kiss after each purchase and thanked me," she says. "Two of the store clerks commented on how nice it was to see the boys thanking me, as they don’t see that often."
Lisa, a saver who now lives without credit card debt, wishes she’d been equipped with the envelope system as a child and is grateful her boys have embraced using their envelopes regularly.
"I like that my sons are learning at a young age that they don't have to use credit to get what they want," she says. "I am confident they will be successful managers of their money as adults."
Lisa offers the following tips for teaching kids how to save:
- Keep finances at the forefront. "We talk regularly about finances and the importance of being good stewards of what we have."
- It’s OK to let kids learn the hard way. "There have been times when I have tried to guide them away from buying certain things, but I let them make the choice since it’s their money, so it can be a lesson to them."
- Get kids involved with charity. In addition to tithing for church, the boys help with the upkeep of the room the family sponsors at a homeless shelter for $50 a month. They’ve also encouraged classmates to donate items.