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I try to teach my 8 year old daughter the basics of finance. She has some her own money (partly in a wallet, partly in a piggy-bank). Some time ago, she threw a short tantrum about "someone stealing her money". My wife's and my assumption is that she forgot spending some of her money. Still, the experience must have been difficult for her. Partly to avoid future incidents like that and partly to instill good habits in her, I'd like to teach her some (very basic) accounting. What is a good way for an 8yo to keep track of her money?

I don't want anything computer-based, since I think that the haptic feeling of "real" money (as opposed to virtual "money" in a bank) is important, and so may be a notebook (as opposed to a computer file).

I don't want to teach her full-blown double accounting (I use such accounting software to keep track of the household finance, but that might be too abstract for a child).

So, do you have any suggestions as to how technically an 8yo can keep track of her money, using pen and paper? She can read quite fluently, she understands decimal notation, although she can't yet perform addition (but this may be good opportunity to learn it).

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    If you consider personal accounting to include managing a budget, I would suggest that the envelope method may also be of some value in this example. – fred_dot_u Apr 3 '18 at 19:23
  • I wanted to suggest doing something exactly opposite: ditch the physical tokens and use a bank account with a debit card. It keeps track itself. Sadly, often there is minimum age requirement of 13. Sounds more fit for parenting SE. – Agent_L Apr 4 '18 at 16:30
  • Like @Agent_L suggests, an account w/ a debit card is a good way to go - look into Current.com - no age limit on the Visa debit card you get, you can setup recurring payments, supports giving and savings accounting as well, and you can use the card anywhere. Very cool service – NKCampbell Apr 4 '18 at 16:52
  • I think this is an excellent idea. My mother had a rule that "money is no business of the child". (I ended up financially ruined a few years later!) However, you said I think that the haptic feeling of "real" money (as opposed to virtual "money" in a bank) is important ...note that you think that. In a decade, the eight year old will rarely be touching cash, and there's a good chance society will become fully cashless during her lifetime. Might be better to prepare her for reality. I was just talking with a 25yr old and I was surprised to learn that she'd never "not had the internet". – ashleedawg Apr 5 '18 at 4:00
  • @ashleedawg Depending on where you live a decade may even be too much. In the Nordics already now people don’t use cash very often. Personally I haven’t used cash in many years - only when traveling. Guess it differ from country to country how easy it is to live without cash, if all stores/shops etc accept electronic payments. – ssn Apr 5 '18 at 7:50
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If I were you I would simply use a check register, cash, and jars. Check register sheets can be printed online and increased to an appropriate size.

I really like Dave Ramsey's teaching on this. To me it is world class:

  1. Children earn a commission, not an allowance. They earn this commission by doing work. If they don't work they don't get anything. This links work to money which is one of the most valuable life skills to have. It does not matter that the amount they receive is out of line for the work performed (like paying them $1 for feeding the dog).

  2. They should be paid in cash, no transferring money for them, no spending the money for them.

  3. They should have three jars for accounting purposes. One for spending, one for giving, one for savings. Each time they are paid all three jars are addressed. Some kids will be unhealthy savers, some unhealthy spenders. Giving helps keep us all humble and increase happiness.

    When it comes time to spend they take the money out of the spending jar and go to the store. They spend that cash. For savings, they take that money to the bank and deposit it. For giving, that is a bit more tricky, but depending on the charity you and they choose, you have them give that cash.

  4. In your case you can then have a check ledger for each jar. On that ledger you can log the cash flows.

By doing these things you will give your child an amazing head start in life.

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    That first para - This sets a potentially bad precedent. It encourages the kid to think that every chore is to be done for money. The day OP says "please take out the trash" and the daughter responds "that will be $1"? We did very well with the allowance. When she went into HS, and we stopped working, our daughter said she was so thankful knowing we set aside money for college, she didn't want us to give her any weekly allowance. – JoeTaxpayer Apr 3 '18 at 12:07
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    @JoeTaxpayer To be clear, Ramsey does not advocate only having kids do chores for money. He teaches having some chores that are done solely as a contributing member of the household, and other chores that are done for a commission. But, I understand that this approach does not work for everyone. The lesson that money comes from work and that you are not entitled to other people’s money solely because you exist is an important lesson to learn, whether or not you learn it through your allowance. – Ben Miller Apr 3 '18 at 12:49
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    @AaronMcMillin it is a bit more involved in that, namely service --> money. That service starts in the form of labor. By addressing the "saving" category early we can then take care of the compound interest lesson. When we first start out, labor for wages easily overshadows income by compounding. Both are necessary and are addressed. Service can take many forms such as investing in a company's stock or bonds. – Pete B. Apr 3 '18 at 14:47
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    The OP wants to know how to teach basic accounting, NOT how to teach the child the value of money, how much allowance to pay under what circumstances, etc. Literally only the first two sentences of this answers the OP's question. The rest answers a question the OP did not ask. – stannius Apr 3 '18 at 15:58
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    @JoeTaxpayer Ramsey's focus is financials (his books have titles like "The Total Money Makeover" and "Dave Ramsey's Complete Guide to Money"), not on child-rearing. You can draw your own conclusions from there. – Walt Apr 3 '18 at 19:09
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I've recently switched over to an allowance system that is attempting to teach my son the value of money, and more specifically, saving money to earn more money. It's a very exaggerated interest-based system, but for a 7 year old it so far seems to be doing the trick.

First, I don't pay him an allowance for doing specific chores. I personally think it sets precedent for teaching him that everything he does comes with a dollar value, and that's not how family/life works. He gets an allowance for simply being a contributing member of the family. He has chores, and we expect him to do them. If he fails to do them often or runs into a streak of not living up to his end of the bargain, then we'll worry about consequences on a case by case basis. But I know not every kid is the same, so this is tailored to his personality specifically, and so far that works.

Back to the allowance. The model is this:
- He earns a base allowance of $X/week
- For every $Y he has in his savings, he earns an extra $Z/week
- He can earn a maximum of $n/week

An example:
- Base allowance: $3/week
- For every $10 in his savings, rounding down to the lowest 10 (starting at $10), he earns an extra $1/week
- He can earn a maximum of $7/week, capping the interest at $40 in his savings

In this system, I also make him present to me his cash on allowance day. If he misplaced his money, then he won't earn interest on the missing money, only on the money he's shown me at the time of earning his allowance. This keeps him more aware of his money and he hopefully learns to keep it safe. While not necessarily accounting, it does force him to account for it physically once per week.

It's also worth noting that he has a head for math and we've been giving him an allowance since he's been 5, so he understands, at a very base level, the value of money. It also started as a flat value allowance. While compounding interest is still something he's wrapping his head around, he gets the concept: Save more money, earn more money. And that's what we're encouraging him to do. If he wants something very badly, he can spend all of his money, but as we've seen already, he'll pause to think about it as he weighs up whether or not the item he wants to buy is worth losing out on his investment earnings.

All of the values can be tweaked as he gets older, encouraging him to save more money so he can earn more per week, or by reducing the minimum value to prevent it from, being too harsh when he reaches a savings goal and buyers something he really values. But that's part of a conversation I want to have with him eventually once he realizes the problem. When he finally realizes a squeeze in part of the system, he'll hopefully come to me and negotiate a compromise, which will start teaching him more valuable life lessons when it comes to understanding his own contributing value.

Ultimately, the hope is for him to use this system to reach several money-related goals. Personal finance is part of the journey and makes him accountable with actual value. The logistics side of personal accounting is the easy part, the meaning and importance of it is what we want him to learn first. That, and that the value of a dollar isn't [only] measured by salary or an hourly rate, but what you do with the money you've saved by having it work for you.

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    Interesting arrangement; the idea of capping the 'interest' also seems like it could help reduce the risk of becoming a miser at an early age. – Grade 'Eh' Bacon Apr 4 '18 at 16:11
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    Exactly. I still want him to have fun with the money he's earned. The hope is that he learns the importance of saving and how money can work for him, but not at the expense of enjoying the reward for his hard work. – Dan Apr 4 '18 at 17:36
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    +1 I really like this answer. Learning the value of interest is really important. I would like to refer to this answer (parenting.stackexchange.com/a/33311) for bigger purchases (PC, Mobilephone, Car...). If the child has learned the 'value of his money' then you could support it that whay so that it has not to start at 0 after a big purchase. After years of saving money for my first own PC as a child, my dad payed for it to 'reward' me for saving all the money. It was gread because didn't had to start at 0 again – some_coder Apr 4 '18 at 19:08
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    So, do you have any suggestions as to how technically an 8yo can keep track of her money, using pen and paper? because that's the question being asked here – AakashM Apr 5 '18 at 7:56
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    Also, the question was: "What is a good way for an 8yo to keep track of her money?" And my suggestion was that it should be tracked physically. But to understand why I recommend it tracked physically, I explained the circumstance that encourages my son to keep a close eye on his money as that motivates him to better track his money. – Dan Apr 5 '18 at 16:46
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Since she essentially only has a cash register, a simple cash journal should do the job.

Have her do weekly sums and compare with the contents of the piggy-bank.

If she forget to record some spending, she should notice there and still be able to remember. If not have her do daily sums.

  • Probably the best approach - simply recording all outgoing and incoming amounts one by one, periodically comparing against the actual balance. Ties in nicely with the idea of being cognizant of one's spending, as well. – Grade 'Eh' Bacon Apr 4 '18 at 16:10
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    +1 for answering the actual question. – André Paramés Apr 5 '18 at 9:15
  • This aproach could actually be combined with additional "book money" she has in an "account" at the parents bank. That would teach the basic concepts of banking without using a bank. As "full blown double accounting" is done, anyway, this shouldn't be too much trouble. – Alexander Kosubek Apr 5 '18 at 11:00
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Definitely a good time to teach her addition and subtraction. Set up a simple form you can print out whenever she needs a new page, and give her two copies one for her wallet and one for her piggy bank. It doesn't need more than four columns - date, reason for the change (earned by feeding dog, birthday money, spent on toys etc), amount of money (positive if received, negative if spent) and total. Start the first line of each for her, with a total of the current amount in the wallet (or bank).

Each time you give her money, help her record how much money and where it came from in the right list (eg wallet). To start with, she can count the amount now in the wallet and list that as the total, but use that to introduce her to addition and get her to start adding up on the sheet, then checking that with the count of how much is now in the wallet. Likewise, each time she spends something, help her record it and subtract it from her total. Make it a fun part of the spending experience ("Cool, you now have that candy/toy/whatever and we get to record the money") as something you and she do together to start with. Make sure to do it immediately on getting home, so there is a strong connection between spending and remembering to record it.

You can "practice" the addition and subtraction any time you like by having her transfer money from wallet to piggy bank & vice versa and helping her record it on both sheets.

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