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Making Smart Money Choices Using a Three Jar System

“I don’t know how to say no to him,” a good friend of mine confided in me at a party.  This friend was of particularly good means and though it was true that he could afford to get virtually anything his son might request, I suggested that he ought to make a change.  Financial literacy is about making choices, and he was faced with an important choice for his son.  He needed to consider a different approach.  Rather than saying they couldn’t afford something, I suggested that he say the family hadn’t budgeted for the item.  He could then use this as a teaching moment and begin an allowance system for his son to teach him about smart money choices.  Without setting up this framework, the son’s perceived world could become one of limitless stuff.  Very problematic.

A three jar system, in which your child sets aside money for sharing, saving and spending smart, creates a terrific framework for you to teach your child to make choices with his or her money.  Important choices.  The traditional piggy bank was okay, but the three jar system is much better.  Rather than taking money and plopping it into an opaque bank that is difficult to access, your child is compelled to examine and touch money each week (or whenever they receive it) and to choose into which jars, or “buckets,” they need to place the money. The piggy bank paradigm worked in a world in which money remained a taboo subject. The new paradigm is one in which we want to raise kids to be “money-comfortable.” We want kids to be able to easily access their money and feel confident making money decisions so that when the time comes for them to make more consequential ones, they’ll be prepared.

Choice makes our lives rich and enhances our ability to learn.  Imagine a college with only one set of courses available.  Imagine not being able to choose your friends, choose your work...you get the point.  Receiving an allowance is really only part of the process.  Choosing to allocate that allowance and setting up the terms of how the allowance is distributed is extremely important.  For example, will you mandate that your child save 10% of his/her allowance each week in the “Share” jar?  25%? 50%?  How about the “Save” jar.  Will you “match” the money they put in their “Save” jar?  In case you’re wondering, we do a quarter for every dollar with our own kids.

You, too, have choices in setting up your system, but remember that exaggerating those options when they are young is something to strongly consider.  We are told that saving 10% of our income is a noble goal, and it is. But in order to achieve that goal, it’s not a bad idea to have your kids place 25% of the money they receive into the “Save” jar and 25% into the “Share” jar.  This exaggeration can help solidify positive habits.  That’s along the lines of what we do.  Our seven-year-old receives seven dollars every week. We require that two dollars go into the Save jar and one into the Share jar. She has discretion to put each of the four dollars left into her “Spend Smart,” “Share” or “Save” jars. Incidentally, giving one dollar per week per age of the child as we do is an easy maxim you can use to setup your allowance.  As time goes on, you’ll want to give them more and more decision-making power over their money. In the beginning, though, you want to establish good behavior by mandating certain choices.  Exaggeration works.  David Owen, in his book First National Bank of Dad, used the concept of exaggerated interest to get across the power of saving.  As the book’s name suggests, Mr. Owen was the family banker.  He knew the small percent of interest that traditional institutions pay on the relatively small amounts the kids were savings would have minimal, if any, impact on his children.  Instead, he provided a much higher rate of interest to emphasize the importance of saving.

So go ahead and setup a three jar system. Don’t forget to have your child set goals using pictures pasted on the jars so that they can visualize their goals as well. In addition, the “Share” jar doesn’t get lost in the process.  There are various ways to accomplish this. Talk to your child about what’s important to them and find a charity that might support that interest. Just as we suggest you do with the “Save” jar, print out and paste a relevant picture (e.g. a pet for adoption or food for a food bank) on the jar to remind your child why he is depositing money into that jar at allowance time. Help him set a goal to save a certain amount and then help them make sure the money gets to that charity.

At the end of the day, setting up this three jar system can help you as a parent change the conversation from “we can’t afford this” to “have you saved the money for this.”


John Lanza is the Chief Mammal at Snigglezoo Entertainment, Creator of the Dr. Toy award-winning Money Mammals DVD & book, Joe the Monkey Saves for a Goal that helps kids learn to “Share & Save & Spend Smart Too.”  His newest book, Joe the Monkey Learns to Share, was just published. John also runs The Money Mammals Saving Money Is Fun Kids Club for credit unions nationwide and blogs, tweets and writes often about youth financial literacy.  Find out more at www.themoneymammals.com


Contest: In conjunction with America Saves Week (February 25 through March 2), two commenters will be picked at the end of the week to receive a print copy of Joe the Monkey Learns to Share.  Please leave your first name and the first letter of your last name as well as a contact e-mail.  Contest closes at Midnight EST, March 2 at which time 2 winners will be chosen.