I accidentally found myself watching one of those wife swapping shows (which honestly sounds like something that shouldn’t be on TV) the other day and the parents were debating allowances. Since then a few blogs have starting talking about allowances and what’s right and what’s wrong with it. Like most blog posts (including my own) it’s crap. Half the time the parents are focused on the dollar amount a kid receives.
- “$10!!!??? When I was a kid I got a quarter!”
- “$20 is way too much, but $10 is too little”
- “$50, and they didn’t even do anything”
These aren’t direct quotes, but they do sum up what most parents mistakenly focus on when the topic of allowance comes up. What the correct amount is doesn’t matter at all. Depending on your own income level $10 might be too much, or $100 might be too little. It’s what is appropriate for your lifestyle. The same goes for increments, weekly, monthly, etc. Not important.
The allowance doesn’t exist to give kids spending money. If that were the case you’d just give them money when they asked for it. The allowance exists to teach children some level of understanding about money. At it’s most basic level, a monthly allowance teaches a child to save, appreciate patience, and learn there is a limited flow of money. But the allowance can teach so much more. Here’s how:
First and foremost, everything in the allowance system must be formalized. It doesn’t have to be written out in a contract or anything, just make the allowance system formal. Do some tracking, make “pay-day” a specific time and place so there is consistency. Keep documents in a notebook or spreadsheet. This is the most vital part of the system because it conveys the importance of the transaction. As children get older this formalized system will become less important, but by then the foundation should already be in place.
Next, don’t just give your kids an allowance. Make them earn it in some way. My parents made me keep my room clean. So, once a month I cleaned my room 
. You can be as strict or lenient as you want, so long as they do something for their allowance. On top of this, give your kids the option to earn more money around the house. Mow the grass, clean the dishes, get the paper, I don’t care. Just give them opportunities to earn more cash. These two things help your child understand that work must be completed and that money is earned.
Now for the nitty gritty stuff. As I said before, the amount you give doesn’t really matter, whatever you think is appropriate. What is important is that you empower your child to make their own decisions. You empower a child just like you empower a dog (sorry), using a reward system. Getting your child to save is difficult. The instant gratification that comes from making a purchase today far outweighs the puny interest rate they would get in a savings account. Even the 10-12% they would get in the stock market won’t work. Offer to double anything they save (up to a certain % maybe). Stipulate that it must be saved for 6 months, but go ahead and give them the money up front (more money = instant gratification). They are then able to decide how much they would like to spend now and how much they’d like to save. If you’re worried about paying out too much money, just decide their allowance is X dollars and give them 0.5X as their “allowance”.
This will serve as a sort of foundation for your allowance system. You can tweak it here and there to make it fit your plan. Here are some of the other ideas I was thinking about for my kids (whenever I have them).
- Don’t incent them to save for college. That’s the parents’ job. They won’t be interested until teenage years, nor will they understand.
- No other long-term stuff. Kids can’t wait until Christmas on Dec 24th, they aren’t going to wait for anything else either, no matter the incentive.
- Like a business, offer bonuses for a job well done. Could be annual, or just job-based. Humans (even you) get complacent with your normal income and develop a sense of entitlement to it, but a bonus is something else!
- Set up savings accounts for your children. That money is and should be theirs. Don’t let yourself get the feeling you can borrow from it.
- Don’t tax your kids, they won’t get it.
- With young children, use money as a tool for teaching math. I didn’t understand addition and subtraction with a bowl of apples, but I sure did with quarters.
- Have your own finances in order. If your income isn’t steady or you live paycheck to paycheck, focus on yourself and don’t worry about an allowance until you can pay yourself first.
That’s about all I got. Feel free to drop your tips in the comments or say what you do with your kids.
Photo: the ritters
 By The Weakonomist |
The Weakonomist is the founder of Weakonomics. Clicking the picture of the puppy will tell you more about him. If you like what you're reading consider subscribing to the blog, following him on Twitter, and checking out the related posts below. Please consider a donation if you really enjoy Weakonomics. Also keep in mind that nothing I say can be construed as financial advice. |
