How do you pay your child allowance? Do you have a system? Do you make the kid work? It’s time to start teaching my five year old about how money works, so the inquiry is in many of my conversations. I’ve heard good ideas and crazy ideas, and those that are well meaning but that propagate the very credit mess the world is in now. Here are a few tips I’ve compiled from the journey. If you have your own, please add them to the comments!
1. Free Money Sets Up Future Disaster
A friend of mine has a generous allowance system for her six year-old: he does chores that add up to certain sums, and at the end of the week, she matches what he earned dollar for dollar. Rewarding system, yes. But that method alarms me. Young kids are “wanters.” They want, mommy and daddy provide, want fulfilled. If children learn from the start that “earned income” equals “work” plus “free money,” they develop the credit card experience: “I want” plus “I can get free money for not doing anything,” and then, “Oh look, I used my credit card, so they are giving me even more money now to do and get what I want.”
2. Chores Pay
When you tie the allowance to chores, your child gets to experience the reward of working for something and getting it. Rather than offering a set amount per week, make a list of which chores earn what amount–i.e., sweep the porch = $1, wash mom’s car = $5, etc. This will help them to develop a financial goal and work toward it. If they want a new toy or to save vacation money for souvenirs for friends, they can calculate how many chores, and which ones, they can complete to meet their goal.
3. Income Covers Expenses
My parents have a letter I wrote them when I was “13-and-three-quarters years-old.” It was a pitch titled “Erin’s Expenses and Life Story.” I wanted $52 a month, an increase in my allowance at the time, because my parents system included me paying for my own expenses–things like clothing, shampoo and conditioner, teenage incidentals. I had to learn to balance my own income and outflow. If I wanted a new sweater, I wouldn’t be able to buy the shampoo and conditioner I liked. At 13 & 3/4, I discerned that I needed more to handle my expenses and itemized my proof. This method is great for older children. An incrementally increasing responsibility can be a really great element to add to a child’s allowance as he or she gets older, and begins to get a sense of what the world costs to live in it.
4. Saving Is Cool
Six to ten year-olds are not going to be buying their own shampoo. But they can learn to save the moment they start earning allowance. Teach them the practice of putting ten cents of every dollar they earn every week into a piggy bank. When they do, they get to see what is left over of their earnings (subtly training their early experience to income after expenses). They also get the joy of watching their savings grow, and to begin to understand the association of money to income isn’t solely: “I want,” thus, “I get money,” then, “I spend money.” But, rather, they learn, “I work, so I get money for trade, and part of the system is putting money into my savings account.”
5. Money Is Outside Me
Allowance can teach about so much more than just money. It can offer children the opportunity to evolve their “I-want” into a community experience. If your children are too young to work around the house to earn an allowance, consider the jar system to teach the flow of money. Label them as “Savings,” “Fun,” “Gifts for friends + Charity.” Two of these jars are directing their money outside themselves. Rather than receiving money and spending it all on their immediate desires, kids get to see how their money affects their community. Let a child choose the amount he or she puts in each jar each week, and watch the amounts shift over time, as her awareness expands.
6. Charity Feels Good
Teach your kids the intrinsic joy of what it feels like to give money away. When their charity jar is full, take them to a local mission and let them hand it to their recipient. Let them experience that moment, and ask them about it. Do they say, “I loved giving that money to a homeless family. Next time I want to give even more”? Do they find other charity interests that started from the experience of the first one? Getting kids actively saving for charity teaches them concepts of sharing, community, and lets them feel the impact their generosity–and their earning power–has on those around them.
