It's Penny Ante But...

I once told a friend who teaches elementary school about what my husband did when our children were very young. He established home "checking accounts" for each child. We gave them an allowance that was to cover certain expenditures that they had. He taught them how to write checks. When they wanted money from their allowance funds they had to write a check to get it--and balance the checkbook afterwards. He taught them to check their balances before making a "purchase." And our kids also learned that they couldn't buy what they didn't have the money for. They learned about delayed gratification and how to save up for the "big ticket" items.

This same elementary school teacher decided to borrow our system to teach her students about the value of money and how to manage it. She set up a system whereby each student in her class would receive one nickel in "salary" each week. How or if they spent it would be up to them.

She created a catalog of items that appeal to younger children and this was her students' shopping catalog. Included were things like bubble gum and jelly beans and candy bars and apples, as well as "cool" pencils and markers and small toys. Mid range items were things like books. In the luxury part of the catalog she included some small electronic games that cost in the $5 to $10 dollar range.

When students at first complained that a nickel wasn't very much to earn that opened the way to a discussion about minimum wage jobs and what you could earn if all you had was a high school degree. The teacher then added in a way that the students could get a "raise" in salary. Completing certain projects could get them a raise. Passing the term tests in the required subjects could get them a raise, the raise depending on the mark earned on the test. Working "overtime" by doing extra book reports and such could get them more money in the week they worked it. In short, getting an education and working hard could earn them more money.

She told me that some students seemed not to be able to get out of the here and now mode of spending. Every week they spent their allowance completely. They bought a small piece of candy or a crayon. Some were satisfied with these small purchases and never complained. Others complained that all they ever seemed to be able to buy was a little thing when they really wanted something more expensive from the shopping catalog. Some children, when they got a raise in salary, spent it all each week by buying a more expensive piece of candy. A few listened to the teacher's advice and put the raise in salary into their "savings accounts."

Midway through the year there was a real dichotomy in the students' accounts. A lot of students were living paycheck to paycheck. They had nothing in savings. A few had a little bit in their savings accounts. And even fewer had a lot in their savings accounts.

The teacher felt her students were too young to fully understand the idea of credit and borrowing so she made a rule that you could not spend what you didn't have; no going into debt.

Interestingly, a few of her students figured out the value of joint purchases. If a nickel got you a piece of gum but fifteen cents got you a candy bar, some students would get together in groups of threes and buy a candy bar. Their reasoning was that even 1/3 of a candy bar each was better than just one piece of gum. Two students who were in the "saver" group still had not gotten enough saved to buy one of the electronic toys, but together they had enough, so they bought the toy and shared it. (Think of it this way--why should two next door neighbors both spend $500 each on a snow blower which is used seldomly when they could pool their money and each pay only $250?)

The teacher had one student who refused to spend anything. He worked hard for the raises and saw his salary go up but he spent nothing. He told the other children that his mother had told him it was important to "save for a rainy day." In December their area got a real gully washer of a storm and it poured for three straight days. All the other children told him that the time had come to spend--it was clearly a rainy day.

At the end of the school year the children had learned a lot about spending and saving and how to budget so you can have a little something now and a lot of something later. A few kids ended the year with nothing in their accounts. A few had a bit of savings. A few had a lot of savings. A very few never got beyond their original salary. Most had gotten a few raises. A very few were real go-getters and had raised their salaries tremendously.

One student with a lot of money saved wanted to lend some of it to a fellow student who very much wanted to make a big ticket purchase and didn't have the money. The teacher refused to allow the loan. She explained as best as she could to such young kids that the cost of borrowing money made the price of the item way more than they thought. Was it really worth it to go into debt for a toy? The two kids decided that it wasn't.

If you are a parent or planning on being one, you might want to think about using this system with your children. Our kids never found having to write a check as a problem and they learned a lot in the process. The teacher's students learned some really valuable lessons about savings and work. The time to begin is when kids are young. It's a lot harder to rein in a twenty-year-old with bad financial habits.