Money Management For 5-Year-Olds

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My daughter turned 5 a couple of weeks ago. My wife and I had decided a few weeks before her birthday that we would start giving her an allowance. As we talked through it, we agreed that we wanted to land a few important lessons with this:

  • Work Ethic (She’ll need to do chores to earn her allowance)
  • Money Management (We’ll teach her about Giving, Saving, and Investing)
  • Delayed Gratification (She’ll need to save for bigger items she really wants)
  • Value of Money (Having to earn her money provides context for its value)

As we spent some time thinking about how to best structure this for maximum effect, we started researching tools. We looked at our bank, but their options for accounts for children were somewhat limited and did not offer all of the features we were looking for. We ended up landing on Greenlight, which offered everything we wanted for a small monthly fee. With Greenlight Max, our daughter gets a debit card which we can easily and instantly add money to through an app, it allows us to have spending controls, has built-in support for her saving and giving goals, and allows us to teach her investing directly through the app. We can also automate weekly allowance payments and even manage chores within the app!

If you’re going to signup for Greenlight, please consider using our referral link! You’ll get $10 at the end of the first month, and so will we. Any money we receive from this will go directly to our daughter’s account!

When we sat our daughter down to talk about her allowance, we explained that we were not just going to give her money each week. She was going to have chores to do each day, and she would need to complete all of her chores to earn her allowance. We’re willing to give her some flexibility to work through things early or make up missed chores when life gets in the way, but it is her responsibility to complete these things. We also may offer help from time to time when needed, but we aren’t going to just do these things for her.

We also made it clear that the chores are not a form of punishment. She has the option to choose not to do the chores, but the consequence of that choice is that she will not receive her allowance. Additionally, we are not going to just buy things for her. If we go somewhere and she’d like to buy something, and she does not have enough money, she won’t get it.

After we felt comfortable that she understood the terms of the allowance-to-chores relationship, we spent some time talking about how much money she will receive per week and how that money will be used. Each week, if she completes her chores, she will receive $10. When we were going over this part, we pulled out 10 one-dollar bills and laid them out. The first dollar earned of that is earmarked for “giving.” Recently, while we were on vacation, she helped pick out a birthday present for one of her friends. She picked out a present that she really loved and knew that her friend would love as well. Because she picked out something that she liked so much, she struggled a bit with jealousy between the time we purchased the gift and the time we gave it to her friend. Several times, she wanted to play with it and mentioned that she wished she had one as well. Eventually, the time came to deliver the present. As expected, her friend loved it! Our daughter was so happy and proud that she had selected a good gift and spent a lot of time talking about her friend’s reaction to getting it.

When we were talking about that first dollar she earns being given away, we reminded her of how she felt when her friend received that gift. We told her that it often feels much better to give than to receive, and that learning to give a portion of everything she earns will help her have good feelings inside that nothing else she could buy with that money would. We also explained that it is important that she understands where that money she is giving is going, and what it is being used for, so that she can give with enthusiasm and get that same feeling she had when she gave her friend the birthday present.

Each of you should give what you have decided in your heart to give, not reluctantly or under compulsion, for God loves a cheerful giver.

2 Corinthians 9:7

We took that first dollar out of the ten that were laying there, and explained that she still had $9 left. Next, she would invest $2. As expected, she asked “What does invest mean?” In the simplest terms, I told her it means that we are going to use her money to make more money. This was an interesting concept for her and she naturally had more questions. Without getting too far into the weeds, I explained the idea of letting someone else use her money, and when they pay her back, they give her more money than they initially used. The extra money that gets paid back is called interest, and the longer the money is working for you, the more interest you can earn. I also explained that eventually, the interest can also earn interest, and this is how her money will really grow over time. I told her that there are many types of investments, and that she would be investing in the stock market.

To help explain the stock market, I told her that big companies let people “own” a portion of their company through partial ownership shares called stocks. If you were to have ALL of the stock shares for a company, you would own that entire company. Typically, when a company does well and it seems like they will continue to do well, their stock prices go up over time. When a company makes poor decisions or is not doing well, the stock prices can go down. I told her that we could talk about different companies and that she could choose which companies to invest in. Each week, we will look at her investments and see how they are performing before deciding where to put our investment for that week.

After giving $1 and investing $2, she is left with $7. Of that $7, she will allocate $3 to savings. If she has her eye on a big ticket item or items, we can add that to the Greenlight app along with the cost, and she can see each week as she progresses closer to her goal. If she does not have anything specific that she wants to save for, she can still build up this savings amount in case she finds herself in a situation where she wants to buy something that is expensive, but was not something she planned for. She wants to buy a bicycle and a LOL Surprise Dollhouse. We looked up the prices of the ones that she wants, added them both to the app, and those are what she is saving for currently.

My wife and I were originally going to get her a bicycle for her birthday but ended up taking her on a trip instead. We told her that we would cover half of the cost of the bicycle because we do want her to have the ability to learn to ride it sooner than later, and we also want her to have a fun reason to stay active physically. The $250 LOL Dollhouse is going to be all her. Our hope is that as she discovers how long it takes to earn that much money and how hard the work is, she will not be eager to part with it unless she truly wants something. If she does decide to move forward with the purchase, she’ll have a much greater appreciation for the item itself and is likely to treat it with more care and enjoy it more than she would have if it had just been given to her.

At this point, there is $4 left from the original $10. This final $4 is hers to do with as she sees fit. If she would like to give more, invest more, or save more, she certainly can. We told her that if she has big savings goals, putting more money toward those goals each week will help her reach them more quickly. She can also spend this money if she wants to. If we are at a store and she wants something silly, as long as she has the money for it and it does not pose some sort of risk to her, we are going to let her buy it. If she spends all of her money on silly things and then cannot buy something she really wants, she will need to spend time reflecting on whether those silly purchases were worthwhile and consider that the next time she finds herself in that situation.

With the groundwork laid, we went through our first week of chores. She’s five years old, so we wanted to pick things that helped her learn responsibility and challenged her some, but did not overwhelm and discourage her. We also wanted to give her some “low hanging fruit” to build positive momentum. For example, she already has to use the potty and brush her teeth each morning when she wakes up and each evening before she goes to bed, but it’s often a struggle. In the mornings, she is tired and moves slowly to do everything. If we try to force the issue (when we’re running late – for example) it turns into a battle and emotions get involved. At night time, she wants to avoid going to bed and knows that brushing her teeth and using the potty is followed by bedtime. With these things being added to the chore list, it’s something easy for her to complete out of her weekly list, and it helps provide us negotiating power to accelerate this process. It’s truly a win-win scenario for us as parents and our daughter, and it makes these tasks more cooperative because we both benefit from successful completion. We’re building good habits too. Eventually, it will just become something that happens naturally as it is part of the daily rhythm and we won’t need to talk about it anymore.

Another daily task is that our daughter will feed the cats and the dog every evening. This is easy enough to do, and she enjoys helping with it anyway most of the time. The cats provide a good reminder when it is time, as they meow incessantly as if they’ll wither away without food right this very moment until the food hits their bowls. The dog is much less needy and dramatic, but does get very excited when it is his turn. This went well throughout the first week until Saturday. My wife took the kids to the zoo with her brother and their kids. They all got home around 6PM, which is right at the end of the window when our animals typically expect to be fed. Our daughter was very tired when she got home, and wanted to lay down for a bit until dinner was ready. Since she was fully awake, though, I asked her to please feed the animals first. It wouldn’t take very long and she could lay down as soon as she was done.

She protested pretty hard, but ended up feeding the cats. After she fed the cats she said “The cats were more hungry, so I fed them, but the dog does not seem as hungry so I will feed him after dinner.” I explained to her that he was certainly hungry, as he only gets to eat twice per day, he just does not show it the same way as the cats. She dug her heels in and doubled down on the after dinner idea. I think largely because she was so tired, she began getting very emotional about it, and started to cry. This is one of those moments that seem to happen a few times per week as a parent when you have an opportunity to assert your authority or teach. My natural instinct is to talk in a firmer tone and insist that she does what I’m asking her to do, but that just creates conflict. Even if she does it, it is in protest and we will be right back here again next time. The longer the cycle goes on, the more heated the conflicts will become, and eventually it will feel like every little thing is a fight.

I took a moment to think through the situation, and asked my daughter to please listen to me for just a minute. I told her that I knew she was tired from her long, fun day at the zoo, and that she wanted to lay down. I also reminded her that this chore was not a form of punishment. She does not have to do it if she doesn’t want to, but it isn’t fair to make the dog wait until after our dinner for him to eat. He hadn’t been fed since very early that morning, and he was going to get fed right now. If she chose to do it, it would only take a few minutes, the dog would appreciate it, and we could sign her off for that chore and it could be done for the evening. If she chose not to, that would be fine too. We were not going to be mad at her or punish her, but we were going to feed the dog his dinner and she would not be able to be signed off on that chore for the day. Almost immediately, I saw a physical change in my daughter. All of the tension in her body melted away. Her voice returned to normal, she stopped crying, and she said she would feed the dog. I acknowledged this immediately, thanked her for listening to me and making a good decision, told her the dog thanked her too, and signed her off on the chore. She went to tell her Mom that she made a good decision, clearly connecting the dots in her mind that she had overcome her urge to shirk her responsibility and was very proud of that.

On top of the daily repeating chores, each day she has one “bigger” task that she needs to complete before any screen time happens. We are trying to teach her that she needs to prioritize things that need to be done before doing things that she wants to do. It is also a nice way for us to limit her screen time without outwardly telling her that she can have a specific amount of time and setting a timer. The chores will almost certainly evolve over time, but here is what week 1 looked like:

Brush Teeth & Potty (morning)Brush Teeth & Potty (morning)Brush Teeth & Potty (morning)Brush Teeth & Potty (morning)Brush Teeth & Potty (morning)Brush Teeth & Potty (morning)Brush Teeth & Potty (morning)
Feed Dog (evening)Feed Dog (evening)Feed Dog (evening)Feed Dog (evening)Feed Dog (evening)Feed Dog (evening)Feed Dog (evening)
Feed Cats (evening)Feed Cats (evening)Feed Cats (evening)Feed Cats (evening)Feed Cats (evening)Feed Cats (evening)Feed Cats (evening)
Help In YardClean BedroomClean Living RoomHelp Unload DishwasherClean Play RoomPlay Chess or Read (30 min)Check Small Trash Cans
Brush Teeth & Potty (evening)Brush Teeth & Potty (evening)Brush Teeth & Potty (evening)Brush Teeth & Potty (evening)Brush Teeth & Potty (evening)Brush Teeth & Potty (evening)Brush Teeth & Potty (evening)
Sleep In Own BedSleep In Own BedSleep In Own BedSleep In Own BedSleep In Own BedSleep In Own BedSleep In Own Bed
Weekly Chore Chart – 05/02/2021-05/08/2021

For week 1, we also offered some bonus opportunities, which we explained at the beginning of the week. The bonus opportunities were not required to get the base allowance, but would give her the opportunity to more than double her week 1 earnings. You’ll notice that “Sleep In Own Bed” is listed in the chart above. This is something that our daughter has struggled with. We told her that she would earn $1 extra per night that she slept in her own bed throughout the entire night, and if she made it through at least 5 nights, she would get the full $7. She crushed it, sleeping in her own bed the first 5 nights of the week and celebrated by jumping in bed with us on the weekend. This will not always be something we give her extra money for, but we wanted to kickstart the Greenlight account and get her properly motivated to be in her own bed.

On top of that, we were returning from vacation and had a TON of laundry that needed to be done. We offered an extra $5 if, throughout the week, on top of her other chores, she could help us fold and put away all of our laundry. Her main responsibilities with that are folding towels and wash cloths, matching socks, and helping to put things away. She was very proactive about this extra chore, often encouraging us to go with her to fold laundry so that she could get it done.

At the end of the week, she earned her full $10 allowance and all $12 in available bonuses, for a total of $22 for her first week. As my wife and I adjusted to this as well, we had to make a few in-week adjustments. For example, one night my wife fed the animals when she got home from work, completely forgetting that it was now our daughter’s responsibility. She was able to make up this task by taking over one of the breakfast pet feedings during the week. We also had company one night directly after work, and they stayed until our daughter’s bedtime, so we had to double up on some chores Saturday to make up the difference. Overall, I am very pleased with my daughter’s enthusiasm for the work, though, and encouraged by the results of the first week.

Yesterday, we paid that $22 into her Greenlight account. We activated her debit card, and showed her in the app how much money she had. We looked at what was available to use at her discretion, what portion was allocated for giving, the savings section where her bicycle and doll house goals were located, and we reviewed her investment options. After talking through the companies that she could invest in, she decided on The Walt Disney Company as her first investment. I also did my best to explain what an ETF (exchange-traded fund) is and why it might be important for her to diversify her portfolio. She ended up putting 50% of her weekly investment in Disney stock, and the other 50% in the Vanguard S&P 500 ETF. We’ll dive into bonds and other investment vehicles over time, but for now, each week we’ll review how much of her own money she has put into investments, how much that money is worth, and what we want to invest in this week.

She may not learn this for 20 or 30 years, but my daughter is going to learn that “time in the market” beats “timing the market” and that compound interest is the most powerful financial force in the universe.

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