Financial Statements For A Kid

This week’s Money Angle is more useful to parents or teachers. Let’s go.

Encouraging Saving

We have had several false starts with an allowance/reward/chore system at home. In the past 6 weeks, our current system for our 8-year-old has gotten traction so I thought I’d share it.

Here are the features:

2 sources of income
a) Chores

He has a list of chores he’s responsible for such as making his bed (and my bed, muahaha), taking out the trash, folding laundry, cleaning up. On a weekly basis he can be paid 0, $3, $6, or $9 depending on how good a job he does and whether he goes the extra mile either with thoughtfulness or initiative. The slacker has yet to earn $9.

b) Interest

He gets paid 1% a week rounded up to the nearest dollar. Sorry DeFi carry-traders, the Moontower yield farm is neither permissionless nor decentralized.

3 account types
a) Spend

This is like a checking account. He has access to these funds but they earn no interest.

b) Save

This is the savings account. He cannot access this money (although in the future he’ll be able to invest it) but it earns interest.

c) Share

This is a charity account. Funds here have to be used for charity or donation. This account also earns interest.

The rules:

Chore income can be split however he wants so long as 1/3 goes to the share account. He has been putting 1/3 into each account uniformly.
Interest income which is based on the save + share accounts is deposited into the save account.

You can fiddle with the rules to encourage whatever behavior you like. Below is a screenshot of an earlier “statement”. Notice how it maps to an income statement and a balance sheet.

Teaching Kids About Money

There are many finance professionals who want to share their knowledge with youths so they can be more equipped to handle money, understand debt, compounding, investing, and so forth. Count me among them.

The knowledge is not just practical but understanding money is a generally useful lens for understanding the world. Finance is abstraction. It’s symbols. It’s an operating system. It modulates the relationship between current and future states of the world and your life.

If taught well, it can be highly engaging and overlap with how we make sense of things that on the surface might appear to have little to do with money (the sub-genre of “freakonomics” probably over-optimizes for insight-porn but that’s a meta-recursive proof of my point).

I’d like to workshop some introductory lessons locally and have been doing a bit of research to that end. I’m compiling freely available resources to that end so I can mix it with my own thinking to create lessons.

Please share your favorite money education resources for kids and teens!

If some of the newer readers are parents you might appreciate some of these prior posts: