Splitting Money Into Three: Spend, Save and Give, and How It Works

Splitting money into three parts is one of the clearest ways to teach deciding. Ron Lieber, in The Opposite of Spoiled, recommends separating what a child receives into spend, save and give. Neale Godfrey, in Money Doesn't Grow on Trees, proposes dividing it into parts with a purpose. Each part serves a different role.

How to do it

Spend is what the child can use on something they want now. Save is what they keep for a goal they have in mind. Give is what they share with someone who needs it or with a project.

To start, use three labeled envelopes or a notebook with three columns. Each time they receive something, they split it. Once a month, review together what happened with each part. Richard Thaler calls separating money by purpose mental accounting, and with this practice the child does exactly that.

Over time they learn that money can be split with a purpose, that sharing is also a decision and that saving has a concrete goal.

If they want to spend everything, it helps to talk about saving without forcing it. Show them how long it would take to reach a goal with what they set aside each week; that comparison often changes the decision. Walter Mischel, in The Marshmallow Test, showed that waiting gets easier when a child has a clear picture of what's coming. Listen to their reason.

What it's for

For your child, each envelope has a job and that gives them an order for deciding. For you, the monthly conversation replaces "and the money?" with a concrete review of each part.

What you'll see over time

In the first weeks the child may spend almost everything or not want to give anything. Between one and six months they split on their own and ask what each part is for. In the long run they adjust the parts according to their goals and propose changes at the monthly review.

Signs it's working

It's working when they split what they receive without being reminded, when they explain the purpose of each envelope and when they propose changing an amount according to a goal.