Money Management for Young People

Published By: Susan Ritter | Thu, Sep 09, 2021




Working with my Wealthy Wise Woman clients, it only takes a couple of hours to understand their cashflow and how to create a mindset of intention around money. With this new-found skill, they begin to get ahead and start to invest, almost immediately. If we can take that learning to young people before they start creating cashflow of their own to manage, we can set them up to build their own financial security and wealth from the beginning. In this article, I share the steps that I have used with my own son.


I hope this gives you some ideas that you can share with young people in your own life.


It seems silly to talk about money management for young people.  Afterall, they don’t have any money!

But just as we practice paper-trading before putting real money to work in the stock market, practicing money management is a skill well learned before actual money is involved.  

The biggest problem I see for clients is a lack of intention related to their money.  Most people watch only the bottom line.  They receive an income and try to keep their spending close to what they earn.  As cost of products and services have gone up over the past 50 years, income has not kept pace, for the majority of people.  Technology and the access to easy credit have successfully shielded us from recognizing the inflation.  As a result, people have not bothered monitoring their cashflows and most have little to no understand of where their money goes.  In the end, they tend to live hand to mouth, or in a constant battle of debt management. 

Here are the steps that I have used with my own son:


Step 1 – Educate on the framework by describing key concepts

  • Money is no more than a tool to reflect an agreement of the value of a piece of work.  When we understand that about money, we understand why currencies can be just pieces of paper. The only thing that gives them authority is the decree of the government and the consent by the citizens. This is why the cryptocurrency and reward systems of the 21st century have been able to take hold
  • Diversification is a key in anything related to money.  We typically hear it when talking about how to invest.  But we have already applied the concepts of diversification long before we start investing.  The initial process of diversification is the four buckets that all income needs to fill, and it needs to fill the buckets in a specific order:

  1.  Giving or Charity – this was in the form of church tithes when I was young, and still is for many.  However, the opportunities for giving are endless today.  The reason we do this one first is two-fold.  The first is that by giving, we create a mindset of gratitude and abundance for ourselves, while making an impact to improve the world.  I remember at 5-years-old, being given a quarter on a Sunday morning from my father while I watched him shave.  He told me that this was my reward for being ready for church before he was and that this quarter was intend for putting into the collection basket at church.  To this day, 60 years later, this is a vivid memory of being ushered into the world of adults and my first action being one of charity.  Don’t underestimate the power of these little exchanges.  I’m sure he would never remember this incident himself, but it has influenced how I use my income, my whole life.
  2. Saving and Investing – this is effectively like “paying yourself first”.  We work hard to earn our income.  When we pass it through our hands to others, we don’t get to benefit from the long-term effects of getting our money working for us.  As a result, we are stuck having to use only our own personal value to earn every dollar.  When some of those dollars start working for us, we can enjoy life more and build the parts of our wealth that are more important, like quality time with family and friends.  Saving is out of fashion for most people because of the inflationary pressure on money, but when we find the right saving vehicles, we not only beat the inflation but actually grow our foundation for the future.  It is a way of creating a life where you can plan to live forever, but live every day like it is your last.  The ease of saving in banks is no longer effective to accomplish these goals.  But that doesn’t mean that we stop saving altogether.  The trick is learning where we can save effectively.  

  3. Taxes – As Benjamin Franklin quipped at the birth of America, “the only sure things in life are death and taxes”.  Today, death is starting to look optional ☺ , however not so for taxes.  It is imperative that you are prepared to meet your tax obligation – at least for right now.  The one thing that can make life miserable is always having to look over your shoulder to see if the taxman is coming after you.  This doesn’t mean you need to pay the taxman more than their due, but you do need to pay your fair share.  Afterall, in society we all benefit from the infrastructures that support our standard of living.

  4. Living Expenses – these are the costs for products and services that support our standard of living.  They ensure we have a warm place to live, food, clothing, entertainment, transportation and access to products and services that make life comfortable.  The reason we fill this bucket last, is because when we fill the others first, we know what standard of living we can afford.  We can always find ways to cover our expenses.  But if we pay expenses first then we rarely, if ever, have any left over for the other three buckets.  By filling this bucket last, we know our standard of living and whether it is sufficient to support our desired level of comfort.  If it is not, then we can make choices about where to increase the income or how to decrease the expenses.

Step 2 – Creating the buckets




For young children this can be a great craft project.  Using four containers, decorate them to reflect the purpose of each container.  Place them in a prominent location that they will see regularly.  Over time, they will see their buckets filling up.  There is a sense of accomplishment that comes with seeing the fruits of our labor in a tangible way. 

For older children, and adults, spreadsheets or even graphic software can emulate the same thing.

One of the most important steps in creating the buckets is establishing what percentage of income goes into each bucket.  Some are fixed percentages while others are flexible, however even the flexible have customary standards that are recommended.  For the purposes of the exercise with your children, you can apply the conventional wisdom for each of these buckets. 

  • 10% for charity.  There is a tradition of putting at least 10% of your income toward charity.

  • 20% for taxes. Taxes are pre-determined by the government bodies and will change from time to time, but this percentage is a pretty good average.

  • 20% for saving.  The recommended level for saving is 14-20%.  But the more and earlier you put in, the more you can get the money working for you to beat inflation in the future through the power of compounding.

  • 50% for expenses.  Since housing and mortgages are calculated on 30% of income, that leaves 20% to cover everything else. 




Step 3 – Create the reward system

Children and even adults today have fallen in love with the idea of reward points.  Reward points provide a tracking mechanism that doesn’t require an exchange of government currencies, but holds the same intrinsic value in our sub-conscious mind.  This step requires a conversation around what earns rewards, when they are earned and when they are distributed into the buckets.  


The association between the value of the effort or work and the reward should be established and consistent.  An arbitrary reward system that changes from one evaluation period to the next loses credibility and the benefits of money management are lost or at least delayed.  


For young children, the rewards can be in the form of tickets made from different colored paper.  As a TIP: if creating physical tokens remember they will need to be distributed based on a percentage, so you will need to use small denominations and distribute multiple tickets to reflect different levels of value.  Since it is in percentages, creating rewards in the multiples of 10 is probably the easiest. 


For those tracking in a digital platform, it can be increases in the numbers on a spreadsheet, or even a blockchain product created for your own personal use.  If you or your child is technically inclined to create a cryptocurrency for yourselves this might be a great opportunity to learn how to use this new technology!


Step 4 – Awarding rewards

Just as pay-day is a ritual for many people, reward-day should be treated as a ritual also.  This is when we reflect on the value we have provided that has resulted in earning our reward.  With my son, the reward system is tied to his school work.  Different letter grades result in different reward levels.  The rewards are awarded when the report card comes home.  A conversation about results and a celebration of the best outcomes is done as a part of the ritual.  As we have moved to a platform of self-directed learning, rewards are tied to meeting deadlines for course completion as well.  

Step 5 – Make the Reward Tangible

The final step is to make the rewards worth something of real-world value.  This can be done by setting a conversion level between rewards and tangible products or even cash.  Think of it as something like air travel miles being converted into actual flight tickets.  Consider in advance how many tickets equal a real currency unit, and help them to remember that staying intentional will get them to their target sooner.  One way to make this really effective is by implementing goal setting sessions on a periodic basis where they can decide in advance what they want to save up for.  We will discuss this idea in our next episode.

When the rewards are awarded, it is time to distribute them into each of the buckets per the percentage distribution.  In addition to the life skills being created, these exercises also provide a real-life application for number theory as youngsters sort out how many of their reward tokens go into each bucket.  


With consistency in this exercise, your children will get into the habit of making intentional decisions about where to put their time and effort as well as what to do with the rewards or money they earn.  If you decide to do this exercise with young people in your life, we’d love to hear how it worked for you.

Until next week, remember “The future is yours to create”



Original Source: Wealthy Wise Woman YT Channel











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