Back to the Future: Using Ledgers to Teach Kids Money Management Skills

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There's a lot of personal-finance software out there that'll teach your kids about money. Me? I use notebook paper. And it's worked like a charm.

A couple of years ago, I conducted a fun experiment to find out just how much my kids knew about money: I invited them to apply for a free loan from the Bank of Dad.

Of course, that required the obligatory loan interview. To recap: The scientific results showed my kids had a lot to learn about personal finance and money management.

As a parent, those are crucial topics I want them to master by the time they start their own lives. So to help get them there, I taught them the art of bookkeeping.

What is bookkeeping, exactly? Well, besides being the only word in the English language that’s spelled with three consecutive sets of double letters, it’s the act of chronologically recording income and expenses to understand how much money is available at any given time.

For managing personal finances, a single-entry system such as a checking account register is all you need. I taught my kids to use a slightly modified system that’s no more complicated but better geared for their needs.

Today, most of us do our bookkeeping on spreadsheet software, but I insisted my kids go old-school. They use a good ol’ composition book (the kind you used in junior high) as a ledger. Here’s how it works…

Instead of getting a fixed allowance each week, my kids have a list of chores. Some must be done daily, others less often. Each chore has a “wage” assigned to it. For example, making the bed is worth a quarter, pulling weeds is worth two bucks, and so on.

Every time the kids complete a chore on the list, they enter the activity into their ledger book in black ink. Then they have the entry approved by either me or Mom, and we sign our initials. The signature not only ensures quality control – for example, is the bed really made or are the covers just thrown over the top of the bed? – but it also guards against phantom entries being recorded into the books.

My kids have their own ledgers they’re responsible for. Each composition book is divided into six columns as shown in the example below…

To avoid any disputes between employer and management, a list of their chores and the corresponding pay for each task is listed inside the front cover of their ledger books.

The ledger gives the kids an up-to-the-minute accounting of their current financial situation. When the kids are ready to make a withdrawal, they write (in red ink, of course) the amount of money they want in the ledger’s debit column. The kids are then promptly paid by the Bank of Dad and are asked to sign their names on the ledger sheet to verify that they received the money.

To encourage saving, the kids are given a 25 percent bonus on the last day of each month on the net money saved for the month, after withdrawals. Of course, this bonus is recorded in the ledger as a “Savings Bonus.”

The kids are also permitted to withdraw more money than they currently have in their account. In essence, I’m permitting them to take a loan from the Bank of Dad. To discourage going into debt, the kids are charged 25 percent interest on their outstanding negative balance. The first interest payment is applied on the last day of each month, starting with the first full month their balance is “in the red.” Depending on when they take out the loan, they could have as long as 60 days to get their balance into positive territory before having to make an interest payment.

And that’s all there is to it. You can modify and make any rules you want in starting your own ledger project for your kids.

My kids eagerly accepted the use of ledgers and have since become adept at simple bookkeeping. The best part of this system is that, because bookkeeping requires nothing more than basic addition and subtraction skills, it can be done by kids as young as 6 or 7 years old. If you’re like me and want to take an active role in their personal finance development, I urge you to give ledgers a try!

Stacy Johnson

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