We all want our kids to be money-savvy. We want them to be financially secure and make wise choices their whole lives. We do NOT want them plagued by debt or struggling to make ends meet forever.
A key way to set them on the right path can include using an allowance to teach them the basic principles of money management. And I'm going to tell you my SUPER EASY strategy!
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2 general schools of thought
- Allowance is to teach money skills, so give them an allowance on a consistent, regular basis and use it to teach them the skills of money management.
- Almost everyone has to work for money, so allowance should be earned through work (chores).
Both of these paradigms have merit and will help give your child crucial life skills.
We operate under paradigm #1. So what does this look like for us?
When we were deciding what to do on this issue, I started researching. I read LOTS of blogs and bought and read The Opposite of Spoiled by Ron Lieber. It was fantastic!
Principles We Loved
We decided to start giving our older kids an allowance because we wanted to start having concrete discussions about money that would have a tangible impact for them. We wanted them to practice making their own financial choices in a safe environment before they're adults and the consequences are too Big. We wanted them to start learning that just because you receive $5 doesn't mean you necessarily get to spend $5. You frequently have to give or save some of that money.
What will they pay for? Parents who give larger allowances frequently require that the child purchase their own clothes and other every day items. For us, a good first step was that they use their allowance to buy things like souveniers on trips, fun things they want when we go to stores, or hobby items (Legos, sewing, video games, etc). Their allowance, plus other cash gifts they receive throughout the year give them enough to practice some good money management.
Also, we decided that we would only do allowance for the kids who were ready to have those conversations and be responsible enough to make those choices.
Put into Practice
I read in one of the resources that a good rule of thumb for the amount each child received was their age, in dollars. We decided we could do that on a monthly basis. The other benefit to that was that we would only be doing allowance activities once a month, which for us is plenty.
With doing monthly allowance, I loved that I wasn't locked into doing allowance on any specific day of the month--I need WAAAYYYYY more flexibility than that. I started going to the bank at some point during the month to withdraw the cash, in one dollar bills. And yes, the bank teller always gives me a weird look when I request all ones. So now I just say, "Can I please get that in ones? I have to do allowance."
You'll need some kind of box, bin, or container for the kid's money, preferably divided into the different categories you've decided on. (You could also start with ziptop bags--they're easy to label!) We bought these little $1 crayon boxes--3 for each of our kids for give, save, and spend. They work great, stack well, and allow the right amount of room for the amount of money our kids have. Here are some other great options.
Once we decided how much each child would receive (their age in dollars, monthly), we had to break down the categories. Since we aren't giving them a huge amount of allowance, we also aren't requiring an equal breakdown. They put $1 into Give (which is greater than or equal to 10% for each of them), $1-3 into Save, and the rest into Spend. We also let them deposit any cash gifts directly into Spend. And the especially nice thing is, I'm not breaking the dollars into coins--only dealing with single dollar bills. Since I'm really forgetful (and I wanted my husband to be able to do allowance, too), I wrote down a Guide to Allowance; it's just a piece of paper with each kid's name and their category breakdowns, and a reminder to have them update their ledgers. So now I don't have to re-remember every month who gets what and how we do things. I also put reminders on my phone to both go to the bank and do allowance, because otherwise I'll forget!
Use ledgers to help kids track the categories. In kids' minds, more is what matters. Many kids would think a thousand pennies is more money than they could ever dream of. And yeah, it might look impressive. But it's only $10. So we have to teach kids to want the right BOLD more. Because a $100 bill is definitely more than a thousand pennies, even though it's only a single paper. Ledgers are helpful for this. Take a piece of paper, cut it into 3 long strips for Give, Save, and Spend. Write the category (Give, Save, or Spend) at the top along with the kid's name. If they have money already, add "Beginning balance" and the date and put the amount. Then, whenever they have a deposit or withdrawal, write the date on the left (and what it's for if you have room), add the deposit or subtract the withdrawal, and find the new balance. BOOM! A super-simple ledger system that you can fold up to put into their box so they can SEE what's happening with their money over time.
I also like to have my kids keep a piece of folded up paper in their Save box that are ideas of what they might want to save for. Their minds change SO FAST and it's important to show them that in this process of learning money management. I love being able to talk through their lists when we do allowance every month. What do you think you want now? Do you still want that XYZ? Or yet ANOTHER Lego set?
What great allowance ideas have you heard of or used? Tell me in the comments!
For more on issues like this, check out our Helping Them Grow board.