Do your kids get an allowance? How do you teach your kids about money management and financial best practices? When is the right age to start talking about money with your kids?
My son lobbied for two years to start an allowance, and I was on the fence. I couldn’t imagine what he needed that I wouldn’t buy for him (within reason, of course), and I wasn’t sure he was ready to make his own decisions about money either (I was a little concerned he’d spend all of his money on Pokémon cards!). He was persistent, though, so I did some research, and evolved in my thinking. I realized that an allowance could be an important first step in building financial literacy and teaching kids how to make smart money choices. After a great deal of thought, we rolled out an allowance system last month, and so far, it’s gone very well. Here’s how we did it.
It’s helpful to know that I have no memory getting an allowance as a kid. I got a job instead; I babysat and delivered the daily newspaper (yes, it was that long ago!). If I wanted money for something, I had to earn it. I imagined my kids would do the same. But in 2018, adults deliver the newspaper and babysitting jobs are for teenagers. My eleven-year-old is that age when he’s not quite old enough for outside-the-house earning opportunities (save snow shoveling or dog walking and there’s not a need for these services in our neighborhood), so another strategy was needed to teach him (and his nine-year-old sister) about money.
The most helpful tool I found in figuring out the how to talk to my kids about money was The Opposite of Spoiled: Raising Kids Who Are Grounded, Generous, and Smart About Money by Ron Lieber. This thoughtful book outlines the various schools of thought about how to introduce money to kids, and offers valuable suggestions and success stories, including tips about allowances, budgeting, and charitable giving.
Our system works like this: Once a week, my kids get $1 for each year of life (e.g., my nine-year-old daughter gets $9). I hand out the allowance in dollar bills and/or coins, and the kids are required to allocate the allowance as follows: one half for save, one quarter for give, and one quarter for spend. The kids split the money into small, labeled containers, and are encouraged to keep track of how much they have. Giving them hard currency has been a good way to reinforce their skills in making change, dividing, subtracting, and adding.
The plan is to eventually open a savings account at a brick-and-mortar bank and bring the kids there monthly or bimonthly to deposit funds from their save jars. The save portion of their allowances has a long-term focus, and the idea here is that the kids will let it grow, touching it only for something—which is still to be determined—very important. I’ve explained that adults save for things like a house, a car, vacation, and college.
My son tried to persuade me to let him combine his save and spend dollars toward his own iPad. I dissuaded him—you don’t need your own iPad, use the family one, etc.—but he’s really stuck on this idea. What became clear was that he didn’t understand how much things cost, so together we went online to look at iPads. He was shocked by the price, and discouraged that he didn’t have nearly enough money to buy one. His response was to ask for an advance on his allowance, which I found intriguing. I thought about it, and told him that he could apply for a loan from the Bank of Mom & Dad. In order to do so, he would need to (a) create a business plan explaining his proposed purchase, with an emphasis on addressing the concerns his parents might have, for example, about his having his own iPad, and (b) accept that we’d charge interest. I explained what both a business plan and interest are, conversations I never thought I’d have with kids this young. He’s been thinking about this ever since, asking lots questions and talking his sister about what would go into the plan. A very unexpected turn of events in our allowance experiment!
We’re offered to match the kids’ give amount the first time they make a donation, and they are each considering what issue they want to support (right now, it’s looking like organizations that support endangered wildlife, specifically red pandas and orangutans, are top contenders). When we make the donation (which I anticipate we’ll do in December), I’ll send it in on behalf of my children, so they receive the acknowledgements, which will help build excitement for their first big philanthropic moment.
The spend money is available—with parental oversight. We have some rules, too: no candy or violent video games for the iPad, for example. Yes to toys (within reason) and lost library books and coins for the arcade. The hope here is that the kids will learn how to manage money in a safe environment; if they mess up and spend all of their money on Pokémon cards, they’re stuck. But it won’t ruin their credit and will teach them how to make smart choices. We had our first test of this plan last week, when my husband took my daughter to a toy store with her spend money. She ended up spending almost all of it on a stuffed animal and little Beanie Boos—things she absolutely didn’t need. But part of this exercise is having the kids understand the consequences of their actions. For now, she’s thrilled with her purchases, and carries the stuffed animal around everywhere she goes. We’ll see how she feels in a few weeks, when the stuffed animal is under her bed and the Beanie Boos are nowhere to be found.
By giving my kids the actual money at allowance time, I’m definitely taking an old school approach. I have a friend who uses an app to track his kids’ allowances. The app automatically “adds” to the kids’ balance (in their case, 50 cents per year of life per week), and funds can be subtracted when used by the click of the button. Having the funds tracked virtually is convenient when you’re out with your kids and they want to make a purchase. Another friend tracks her kids’ allowances in a ledger, where everyone can see the balance at any time.
In The Opposite of Spoiled, Lieber addressed the philosophy behind allowance: are you giving your child an allowance to reward them for chores, or are chores separate from an allowance? In my family, chores are what my kids do as people who live in our house. Chores are their contributions to the joint effort of keeping our home in good shape. Allowance is what they receive so they can start to make financial decisions. There are others, though, who want to instill in their children the concept that hard work equals compensation. For them, getting an allowance is contingent upon completing chores.
There are also people, like one of my friends, who exist somewhere in the middle. She recently told me about how she offered her son, who receives an allowance, extra chores—in this case, mowing the lawn—for money. It was over and above what he was expected to do, so she was willing to pay him for it. She also offers him optional projects—like cleaning out the garage, which they do once year—when he is short on cash or owes her money.
The big takeaway are (a) find a system that works best for your family (i.e., easy to implement, sustainable, matches your values) and (b) engage your kids in a conversation about why they get an allowance and how they want to use it.
One of my favorite stories from The Opposite of Spoiled (and there are many I liked) was about a father who wanted to show his kids how far (or not far) money actually goes. He got the equivalent of his monthly salary in dollar bills and brought them home. He gathered his family at the dining room with the stack of bills in front of them. At first, the kids were in awe—there were so many dollars!—but then the father began allocating every bill to the expenses of taking care of a family: taxes, health insurance, mortgage, heat, hot water, electricity, medical co-payments, food, and transportation. The kids watched as the money disappeared. At the end, they were left with a small pile of money and a list of things that they still “needed.” They learned that their needs didn’t include a new bike or cable or visits to the local amusement park. They learned that adults must be mindful of what they spend and make smart choices.
I highly recommend The Opposite of Spoiled. It’s really gotten me thinking about they way I talk about money to my kids, their perceptions of wealth and poverty, and how best I can prepare them to be money-wise adults. Let me know how you’re explaining money to your kids in the comments below!
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