Learn how to save money for kids + how to manage your child's paycheck with this Amish blueprint. The outcome is impressive!
The Amish provide an interesting case study when figuring out how to deal with your own child's paycheck once they start bringing in the dough.
Not only that, but how to save money for kids from that paycheck…even when your kiddo wants to spend, spend, spend.
Why is that?
Well, Amish kids start working + earning paychecks pretty early on in life (talk about some kid money management life skills!). Like, in the 8th grade, after they graduate from school altogether.
The Amish are very aware that handing over an entire paycheck to a 13-14 year old child would be stupid. They've essentially had to come up with, then hone, a foolproof way to deal with their child's paycheck from an early age.
We'll get into much more detail about this in a bit, but first, let me introduce you to the Amish man who made this article possible.
Meet Leroy, My Father's Primary Amish Taxi Client
I guess before I introduce Leroy, I should back up and explain my father's job as an Amish Taxi driver. Most people stop me there, anyway.
My father has been a full-time Amish Taxi Driver in Lancaster, PA for 14 years.
The business is very much based on referrals and word-of-mouth from other, happy, Amish clients. At any given time your phone rings, an Amish person, who cannot own their own vehicle (or only in rare situations that likely revolve around their business, in which case they own a vehicle but hire a full-time driver) asks if you're available at a certain time on a certain date to take them to wherever they'd like to go.
The pay is pretty good; one college summer I worked this job as a backup when my other job fell through and earned $3,000. That's from making $0.60/mile + $10/hour waiting time (as they run their errands in stores, visit with friends and family, attend doctor's appointments, etc.).
Leroy happens to be my father's primary employer. This father of five, ranging in age from 3 to 21, owns a construction company. He hires my father to drive him around to in-state and out-of-state construction sites once a week to check up on his crews.
I say he's my father's primary employer, but really, he's become a friend of our family.
One day several years ago I got the chance to ride around with he and my father for six hours and ask him all kinds of questions regarding handling his children's paychecks and how to save money for kids. And a few days ago, I asked even more questions over my father's phone to him to follow-up on a few things.
How the Amish Get Around Paying an Allowance
There is no allowance given to Amish children.
However, Leroy says that they do give their kids spending money for special occasions. Just not money given on a regular basis.
Instead, Amish kids generally go to school until the 8th grade, and then start making money of their own. Upon graduation they apprentice with someone or otherwise find employment. And employment can be for an Englishman (what the Amish call non-Amish in America), but only if they know and trust that Englishman (for example, one of Leroy's eldest sons used to mow my father's lawn during the summertime for extra cash, a job that came about because of my father's special relationship with Leroy).
This paycheck that the kids start receiving around 8th grade is the source of their spending money. And it's also the source of much, much more having to do with their future.
Psst: Curious if the Amish pay taxes?
Why Amish Children Do Not Get their Entire Paycheck to Spend as they Please
Amish children do not get to keep their entire paychecks to spend. Which is a good thing for three reasons:
- Early Substantial Earnings: Amish kids start earning money at an early age, so probably wouldn't have the know-how to deal with that kind of money. Leroy mentioned that if you were to hand over all their money to them, they'd spend it on stuff that doesn't amount to anything. And he's looking for how to save money for kids in order to satisfy the next two requirements.
- Early Money Responsibility: The Amish are expected to be very self-sufficient at a pretty young age in regards to paying for things − such as coming up with a down payment for a home. For example, Leroy estimated that his son will purchase his first home between the ages of 18 and 19, with a $15,000 – $20,000 down payment. I'm not sure of too many Englishmen kids who could do the same! Leroy says the typical age to purchase a home for an Amish person is at the age of 21, so he's expecting his son to be able to do so a bit early.
- No Health Insurance: Amish do not have traditional health insurance, and so all Amish adults are expected to pay large sums of money towards their own children's health needs + the needs of those in the community who come upon bills equaling hundreds of thousands of dollars. In essence, it's a community-based health insurance plan.
Because of this unique money situation, the Amish have come up with a pretty interesting blueprint for not only managing their children's paychecks, but to solve the puzzle of how to save money for kids so that they can achieve significant financial feats at a very young age.
The Amish Blueprint for Managing Your Child's Paychecks
Growing up on the edge of the Amish community, I had heard the type of rumor a hard-working teenager never wants to hear: Amish kids were given 25% of their paychecks to spend as they please, but had to hand over the other 75% to their parents.
Honestly, I thought that was absurd as a teenager. I mean, wasn't it unfair that I was doing the work − mucking horse stalls and babysitting − but I had to fork over my paycheck for my parents to control?
But why they do this and how it ends up playing out is a pretty darn good blueprint (I can say that now, as an adult. Your own child may feel differently).
- Spending Money: It turns out that the 25% rumor was incorrect. It's even less than that (at least to begin with!). All of Leroy's children's needs are paid for by Leroy and his wife. Leroy then gives his eldest son, who at the time of this interview was earning $120 at a market on Saturdays + working in one of Leroy's construction crews four days per week, 10% of his paycheck to spend as he pleases. Leroy says that the more “liberal” Amish will give their children up to 50% to spend as they please. But he adds that 10% is the normal amount. As the kids get older and they need more money, this gets bumped up.
- Investment Money: Leroy invests 10% of his son's paycheck for his son's future. Each year the amount Leroy invests towards his son's future increases by 10% (so 10% the first year of work, then 20% the second year, and so on). Leroy says the Amish aren't big on the stock market. Instead, they invest in what's called Amish Helping Hands. This group then helps other Amish in the community in the form of low-interest loans (currently 3.25% for mortgages and 3.50% for farmers) to Amish farmers and first-time homeowners. Interest is paid on investments twice a year or reinvested, and the expense ratio is 0.25%. It's a solid investment model, because Amish have an excellent track record of paying any debts owed.
- Household Money: The rest of the money goes towards Leroy's household.
But wait, there's more.
Rental Income is Added In
Since the initial interview was several years ago, I took the opportunity to call my Dad while he was driving Leroy and ask him a few more follow-up questions on the phone about how to save money for kids + manage their paychecks.
It turns out, Leroy's eldest son did end up buying that house at the age of 18. It's a two-unit rental property, and he's got a 10-year mortgage on it. So he earns almost enough from it to pay for the mortgage and upkeep, then will have the property paid off before he turns 30. Impressive!
At the age of 21, which his eldest son will reach in just a few months, he will no longer hand over any of his paycheck money to his father. Instead, he gets to keep it while also living at home rent-free + earning the rental income.
When he does eventually get married and move out of the house? He'll likely keep this property as a rental property, and buy a new home for him and his wife to move into.
Sounds like a budding real estate mogul to me! Except that Leroy says this is pretty typical in their community − to buy a rental property, live at home until you're married, and invest/save a good bit of your paycheck from the age of 13 or 14 onwards.
What You Can Take Away from this Blueprint
While it's not likely your own child will have saved up enough money by the age of 18 to buy a rental property − after all, you'll hopefully discourage them from dropping out of school in the 8th grade to work full-time − you can still glean lots of ideas from this blueprint on how to save money for kids + manage your child's paycheck at an early age that will help them achieve some fantastic financial maneuvers.
Your own blueprint can look like this:
- Your teen gets a job.
- You both sit down after the first paycheck is earned, and figure out what percentage is appropriate for them to spend, and what percentage is appropriate for them to save. Leroy used a 10/10/80 rule, with 10% for spending, 10% for investing, and 80% to his household, with built-in investment + spending increases + a decreases in the household amount as each year passed. Note: Percentages are best, as their paycheck will likely fluctuate with increased earnings, or from being paid hourly.
- You open up a custodial savings account with them (find out how to score a bonus $25 for doing so).
- You open up a custodial checking account for them, or funnel their paycheck through your own checking account.
- They have their paychecks automatically deposited into the checking account you'll be using.
- You set up automatic withdrawals into their savings account from the checking account, proportionate to the amount you both agreed on to save.
- At the age of “majority” (18 or 21, depending on the state you live in) the account gets turned over to them.
Now it's your turn. Have you figured out how to save money for kids from their paycheck? How do you manage your child's paycheck, or how do you want to manage it moving forward? I'd love to hear your thoughts on this in the comments below.
Amanda L. Grossman
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Jack @ Enwealthen
Wednesday 29th of March 2017
Fascinating. Having family in the Lancaster area, I've been around Plain people most of my life. I'd heard parents managed their children's money, but had not heard about the real estate investments.
It makes total sense, especially considering the closed nature of the community.
I'm looking forward to teaching my sons how to generate cash flow as teens rather than trading time for money. We'll see how it works out.
Amanda L. Grossman
Friday 31st of March 2017
Hi Jack! It's cool to see you over here:). That's neat you also have family in Lancaster! What ideas do you have for your sons to generate cash flow?
Saturday 4th of March 2017
Thanks for this posting. It is always helpful to hear how others handle finances, and the reasoning behind it. I never did figure out how to address my children's earned income. I did give an allowance which increased over time, along with increased responsability to cover their own expenses (clothes, gifts, activities with friends, snacks, gas).eI did open an IRA for whatever amount they earned each year, with the understanding that they would speak to me first if they ever planned to take an early withdrawal. After reading this I wish I had offered a one to one match.
Amanda L. Grossman
Friday 31st of March 2017
It looks like you really thought out some great strategies for your kids. So you had your children put all their paychecks into an IRA?