What's the best allocation between spending, saving, and giving for kids?

“Do not save what is left after spending, but spend what is left after saving.”
~Warren Buffett

Smart advice from an undeniably smart investor. The saving (and charitable giving!) should come before any thoughts of spending. How do you make that happen? Automate it. Arrange to have some money automatically set aside from your regular paycheck. Out of sight, out of mind. It’s a strategy that has worked incredibly well for me personally, and something I recommend to all.

Why not start the habit early with kids? If we do, maybe it’ll be second nature by the time they enter the workforce.

“But my kids don’t get paychecks,” you say. Hmmm. What about the money you pay them for allowance, or chores, or odd jobs? What about the money they earn from watching the cat next door or babysitting? What about those birthday checks from grandma and grandpa? Those are informal “paychecks.” Apply Warren’s principle.

How much should be set aside each time for saving and giving? That’s entirely up to you. Every family’s situation and values are unique. Do what makes sense in your family.

What do we do in my family? I like to have that discussion with each child individually. How much do they think they should set aside? Why? As long as it’s north of zero and there’s some thought behind the answers, anything is fair game in my book. They can also choose different allocations for different sources of income. Maybe set more aside from allowance, but less from birthday money. Nothing is set in stone either. Revisit the conversation over the years. Kids change their point of view as they gain perspective through financial and philanthropic experiences. They may wish to adjust their allocations accordingly over time.

What are other families doing? Always an interesting question. Since we have the privilege of running FamZoo, we can answer that one with some real (but anonymous) data from paying subscribers. Why just paying subscribers? I figure that’s the most accurate data. Free trial families might just be experimenting or kicking the tires with impractical settings. Here’s what we found for the average spend/save/give allocations of current subscribers in cases where money is automatically being set aside during parent-to-child payments or ad hoc deposits:

• Spending: 61%
• Saving: 27%
• Giving: 12%

We were delighted to find that the average split percentages are more aggressively tilted toward saving and giving than our default settings of 80/10/10. Kudos to FamZoo families!