Teach Your Children How to Manage Money

by Dennis Perry on November 2, 2011

One of the greatest gifts you can give your children is to teach them how to manage their money.  There is one glaringly absent topic from the educational system in the US at all grade levels.  That topic is money or personal financial education.

One of my biggest goals is to change that by creating a curriculum in practical personal finances and investing for our school system.  Until then, it is up to us.  In the words of an old Crosby, Stills, and Nash song, we need to teach our children well.

As I travel and speak to groups the two most requested presentations I give are those on debt elimination and money management.  We can give our children a giant head start by teaching them early in life (but it’s never too late so don’t let age stop you).

One of the first lessons should be to avoid consumer debt, period!  Teach them that debt to purchase an asset that will help them increase cash flow and/or grow their wealth is OK, provided, of course, that it doesn’t stress their cash flow too much.  Taking on debt such as credit card debt to buy “toys” or “stuff” to support a lifestyle is not OK.

The money management systems I teach all provide money for asset accumulation.  The earlier a person learns and puts one of these systems to use the better off they will be.  It’s never too late to start but it’s always better to start as early as possible.

Money Management – Systems

The 3 money management systems I like and teach are the 70-10-10-10 system promoted by the late Jim Rohn, the 70-20-10 system as described by George Clason in his book The Richest Man in Babylon, and my personal favorite, the jar system detailed by T. Harv Eker in his book Secrets of the Millionaire Mind.

Any one of the systems would be suitable for children but require some modification.

In the 70-10-10-10 system of Jim Rohn, 70% of net, after-tax, take-home income is used for paying expenses, 10% is given to the church or charities of your choice, 10% is used to reduce or pay off debt, and 10% to “pay yourself first”.  The pay-yourself-first money is used to purchase assets that will provide additional cash flow and/or grow your net worth.

Hopefully, your children won’t have any debt and, if younger, likely won’t have any expenses either.  Because of this, a few adjustments to this system are in order.

I would certainly recommend keeping the 10% for charitable giving and the 10% for savings/investing.  The 10% for debt is not needed.  I would recommend splitting it between the charity and investing portions so each of these would grow to 15%.

If they develop the habit of putting 30% aside for savings and charity when they are young it will be much easier to continue as they get older and start earning more money.

The 70% is theirs to use as they wish (with maybe just a little bit of guidance from you).

I should probably say a word or two about where this money is coming from to begin with.  I strongly recommend an age appropriate allowance so children of all ages can begin to learn how to handle money responsibly.  I also suggest that they do this with all money that comes to them; gifts, found money, tooth fairy money.  All money that they receive.  Again, the goal is develop the great habit of effectively managing all of their money.

The 70-20-10 system of Clason is very similar to the Rohn System.  In this system the 70% is again used for expenses and 10% is for savings.  The 20% here is for debt elimination.

As stated earlier children will most likely not have any debt so I suggest that they divide the 20% among the giving and the savings accounts as we did in the Rohn system.

The final system, my personal favorite, is Eker’s jar system.  In my personal life I use a variation of this method that I refer to as the Multiple Account System.  It is heavily influenced by Harv Eker’s teaching and it is the method that I teach.

As in the other systems just discussed it needs a bit of modification for children.  I find it easy to teach to children and very powerful in its effect.  Let’s review this method and how we might alter it for children.

The first 10% goes into a wealth account for future investing purposes.  No changes are needed here.  By the way, in future articles we will discuss what can be done with our investing money; both for us and for the kiddos.

The next 10% goes into a charitable giving account.  Again, no change needed here.  It is important to teach children to give to charities.  There is great value to giving freely without expectation of return to the charities of choice.  The earlier in life that our children learn this, the better off our world will be.

Another 10% goes into what Eker calls the LTSS account.  This stands for Long Term Savings for Spending.  In my opinion this money is every bit as important as the first 2 discussed above.

This is money that your children will put aside in order to purchase something they want.  If they want a new bicycle, this money becomes the LTSS-Bicycle account.  As they save for it, they can do a bit of research into the item they want to purchase to learn exactly what they want.

When they have saved enough money to purchase the desired item they go and pay cash for it.  No debt!

This provides a great lesson in delayed gratification and will go a very long way toward teaching them how to avoid the debt that is dragging so many people down today.

We taught this lesson to our son when he as 6 or 7 years old.  He wanted a Nintendo (the original one).  He saved and saved and saved until he finally had the money to buy it.

He absolutely cherished it and instantly had an understanding of the true cost of “things”. Interestingly, even though he has a Playstation 3, he still has that Nintendo and the original Mario Brothers; over 21 years later!

The next 10% is for Play money.  This is money that is to be used for pure fun.  I’m not so sure that this is necessary for children.  It is good to teach them the principal but I would add this to the larger balance we call Necessities or add it to any of the other accounts.

Another 10% is for education.  In the adult system this money is used for personal development; hiring a coach or mentor, learning how to invest, developing a new skill, etc.  This is not money for school in the strictest sense, i.e. tuition for a child’s private education or college money.  That would be the LTSS account.

Even though a child is probably not going to be taking a course in Real Estate investing or hiring a coach, I still believe there is some value in having money set aside in this category.

This money can be used to help offset expenses for your child to go to a basketball, football, or some other sports camp, take music lessons, or even to learn a foreign language outside of the school curriculum.

By saving for and helping to defray the costs of this type of optional program, they learn to be good stewards of money.  This lesson will pay huge dividends later in life as they learn to become a master of their money instead of the other way around.

Finally, the balance of 50% (or 60% if the play money is added) is to be used as they wish, no questions asked.  As they get older and begin to have expenses this account will be used to pay those.  This account is the Necessities account.

This particular system teaches your children to live on 50% of their income and avoid debt.  The Golden Rule of money and personal wealth is to spend less than you make and invest the difference.  When children learn this method of money management, accept it, and put it into action they will automatically live in accordance with that Golden Rule.

One final point: Children learn best by example.  If you are not currently being a good steward of your money now is the time to put whichever of these systems makes the most sense to you.  When you are using and benefiting from these methods it becomes a lot easier to teach it to your children and have them follow your example.

If we can teach enough of our children to do this and they, in turn, teach their children we can end this crippling spiral of increasing debt and have a very positive impact on this earth.  And that’s worth working for!

Till next time make this your day great and your life rich in every way!

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Alex Arshavskiy November 17, 2011 at 10:01 pm

It’s a great idea to create a curriculum in practical personal finances and investing for our school system.

Teaching to avoid consumer debt is also a strong point.



Phil November 9, 2011 at 2:39 pm

As I wrote earlier, this blog about financial literacy for children is essential! I thought you might be interested in this passage from Tom Brokow’s new book, “The Time of Our Lives.”

“While visitig (School Superintendent) Rhee, I got an insight into how ‘Capital Gains’ had very practical implications. One of the programs involved assigning students roles–for example, a married mom with two kids, a single man, and so on. The students were then given a checkbook with a phantom balance in it and told to do the family shopping for food, clothing, and other necessities.

One student told me, ‘I wasn’t that good at math so I thought it was a good project, but I knew it would be hard to do. We had to pay bills, look for houses, go to the store. Get groceries. We’re learning how to deal with real life.’

I teasingly said, ‘If you could fix the economy, that would be a big relief to all of us.’

A member of the class immediately shot back, ‘We’re working on that now.’

In an economy that is growing more and more complicated…fundamental instruction in consumer finance should be as much a part of every school’s curriculum as basic math and English.” (p. 53)

I thought this was telling and totally consistent with your main point in this post.

Keep up the good work!


Annie Born November 9, 2011 at 7:44 am

Amazing Infomation!
Thank you so much for sharing this vital info!
Looking forward to tomorrow!
Create a great day!
Time to Care for the Caregiver Now?

Midlife Dating Expert Los Angeles November 7, 2011 at 8:52 pm

Hi Wealth Doctor,

I like your systems. Certainly teaching your children to manage their money and wealth at an early age will mean they won’t be incurring a multiple trillion dollar debt.

Happy Dating and Relationships,

April Braswell
Dating Workshops

Kevin Bettencourt November 4, 2011 at 8:36 pm

I love this lesson. Managing money and giving direction would help out with what we’re facing today.

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Clare Delaney November 4, 2011 at 1:50 pm

It should probably be considered a crime that not even the basics of financial management are taught in schools. I liked your descriptions of the different methodologies Dennis, and particularly how you have adapted them for children.

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Eva Palmer November 3, 2011 at 6:07 pm

This would be amazing if it could be taougth in my country!
I think very few kids know how to manage money.
Thanks Dennis!

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Reading body language of biting lips November 3, 2011 at 2:47 am

It is interesting that spending is not taught in school or college.
Scott Sylvan Bell
Reading body language of women biting lips
Now go implement!

Michael D Walker November 3, 2011 at 1:53 am

Terrific ideas on teaching money management for children.

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Phil November 3, 2011 at 1:27 am


What a fantastic, totally appropriate post! If only we could get this to every parent in America! I got through graduate school, got married, bought two houses, and NEVER ONCE did anyone talk to me about the fundamentals of managing money! (Thank goodness I had some good mentors and lots of luck later on!) Why isn’t this considered an essential from grade-school on? If kids are old enough for an allowance, they’re old enough to understand about allocation and management. Thanks for the reminder….now, let’s get this on the front page of the NYT!


Cherie Miranda November 3, 2011 at 1:10 am

Great advice for those who have children. It would have been valuable to learn about money as a child for certain!

Cherie Miranda
Samadhi: The Eighth Limb of Yoga

Neil Dhawan November 2, 2011 at 11:11 pm

Hi Dennis,

I think that your idea to develop a cirriculum to teach children about personal finance will be one of the most beneficial courses. I do like the Harv Eker money management system and like how you’ve revised it for children. Great Stuff!

Stay Amazing and Do Great Things, Neil
Probiotics for Everyone

Body Language November 2, 2011 at 10:05 pm

70-10-10-10, never heard of it, but definitely a great way to split the principle up and understand it.

Mark Hogan

Sonya Lenzo November 2, 2011 at 8:53 pm

Great lessons for children on managing their money. You are correct, not taught in school!
Sonya Lenzo

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