Making mistakes and just careless handling of money occur very early during our growing up period. Without effective early intervention, these behaviors can become bad habits, progress to serious repeated financial problems in life, and cause major threats to our personal financial security. P.T. Barnum said in The Art of Money Getting, “True economy consists in always making the income exceed the out-go.”

So, how and what cash management concepts do you introduce to children that will result in the cash coming in exceeding the cash going out? How soon should we begin to teach our children about cash? There are many creative and innovative ways to teach cash concepts which should at least begin prior to the decision to give money to children as a gift, an allowance, or a salary.

I have found the following approach that I call the Four Bucket Program to be quite useful and applicable for learning to manage cash irrespective of age and level of money knowledge.

Step 1:

Label each of the four buckets accordingly: Pay Yourself First, Contribution, Reserve, and Expense. Become creative in identifying what symbol or object that you will use for the bucket.

Step 2:

Allocate all monies received, whether from a gift, allowance, or salary now called disposable income, to each bucket with no more than seventy percent of the income to be placed in the expense bucket. Place the remaining 30% equally or any percentage amount of your choosing into the other three buckets. So, if you choose to give money to your child for the purchase of an item that cost $5.00, and also want to begin a cash exchange experience for the child in purchasing goods and services, the amount should be $7.14. The five dollars (70% of $7.15) is placed in the expense bucket for purchase of the item, and the difference of $2.14 is allocated to the three buckets at some predetermined distribution percentage. (E.g. 10% of $7.14 to the other buckets, respectively)

Step 3:

Set up a regular time to review and evaluate the financial status. A great teaching moment exists after purchasing the $5 item. A review shows that after the purchase your child has positive balances in each bucket except the expense bucket setting the stage for valuable lessons to be learned regarding spending, having a reserve, investing, and charitable donations.

Step 4:

Set goals for each bucket which can occur over time as the child grows to understand the workings of the program.

Learn more about the use of the 4 Bucket Program in managing cash…

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