Here’s a video version of the post Add An Emergency Fund To Your Kid's Money Bucket List:
Hey, Bill here. As always, thank you for the nice mentions on social media.
Spending? Check. Savings? Check. Giving? Check.
For kids? Nah.
Most people don’t learn about emergency funds until they’re off on their own. Usually it’s after they’ve already dug themselves into a big financial hole. That’s why an emergency fund is step #1 in Dave Ramsey’s famous 7 baby steps for getting your financial you-know-what together.
But what if we taught people about emergency funds much, much earlier? Like childhood.
Kids and teens certainly have plenty of little emergencies to cut their teeth on:
- That third lost sweatshirt.
- The hockey puck through the garage door window.
- The massive data plan overage charge.
- The parking ticket.
Ringing a bell? If your family’s anything like mine, your kids will have plenty of chances to cough up some emergency cash.
So here’s a simple recipe to teach your kids about emergency funds while they’re still young:
- Set up a separate emergency fund for your kid. Add an extra jar, envelope, account, or prepaid card to your kid’s standard set of buckets.
- Divert some income to fill the fund. Change your kid’s spend-save-give allocations on allowance, odd-job, or birthday payments to factor in the new emergency bucket. You can change things back once they hit the target — maybe $25 for a youngster, $100 for a pre-teen, $250 for a teen.
- Share some skin in the next emergency. I say share because some emergencies may extend well beyond your kid’s means. Sharing the costs on a case-by-case basis is fine. As long as there’s some shared skin in the game, the lessons will be learned.
- Replenish the fund. Return to step 2 to refill the emergency bucket. Rinse and repeat as the emergencies roll in.
If you take that baby step now on emergency funds for your kids, maybe they won’t be crawling out of debt later as young adults.
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