Family Series Part 4 – Allowance
Allowance is another one of those highly debated topics when it comes to kids & money, with a wide array of thoughts & opinions amongst parents. Some believe that allowance should be tied to completion of chores. Others contend that kids should be obligated to perform chores as a contributing member of the household, with no expectation of financial reward.
Regardless of how allowance is actually bestowed upon kids, most parents believe that it is a great way to teach kids about money through experiential learning or “learning by doing”. Of course, exactly how much money is given to kids, at what age, and whether there are any associated rules or guidelines will vary by family.
Scout
When it comes to teaching our kids about money, my wife and I have primarily used modeling, which means we demonstrate desired behaviors & actions that we hope they will mimic on their own. While modeling is sufficient in most cases, there’s still no replacement for letting kids learn through their own experiences. In our household we’ve found that allowance has been a great tool for this type of “learning by doing”.
My Experience With Allowance as a Kid
I received an allowance growing up, but it was sporadic over the years and I don’t even remember how much I was given. I vaguely remember that my allowance was tied to chores and of those, the one task that still stands out in my memory to this day is cleaning toilets (which is neither here nor there since it doesn’t even relate to money…)
Suffice to say though, my allowance didn’t have any impact on me or teach me any lessons about money. I also don’t think my parents had any real intentions or plan for using allowance as an instructive tool, so this made sense. On the other hand, my goal is to do the exact opposite and deliberately use allowance to educate my kids, whether they know it or not.
Why We Chose to Implement an Allowance for Our Kids
I forgot exactly where we got the idea (most likely by sorting through multiple opinions from various podcasts over the years), but my wife and I decided to give our kids an allowance many years ago. Although neither of us ever got into any money troubles as young adults, we considered ourselves lucky rather than necessarily possessing any sort of skill. We didn’t want to leave our own kids’ financial lives up to chance, so we decided to take a proactive approach to teaching them about money using allowance as one tool.
At a high-level we were looking for a way to enable our kids to practice the skills of earning, saving, and spending money. We also wanted to find a balance with providing them autonomy to do whatever they wanted with the money, while also doing it in a fairly safe & fairly risk-free way with added parental guidance if needed. For us, allowance was the perfect answer.
Details of Our System
Although there are varying opinions on whether or not allowance should be tied to chores, in our household this is indeed the case. We intentionally highlight this association between money & chores because it simulates a job/paycheck and allows our kids to “work” to earn an “income”. As far as actual chores, we had our kids write down the activities they preferred to be in charge of each week such as taking out the recycling, vacuuming, feeding the dog, and my all-time favorite… helping dad pay the bills. As the kids have gotten older, we’ve revisited these tasks from time to time and made updates based on changing needs or their updated preferences.
It took us a while to figure out how much allowance to provide each week, but we decided on an amount that was equal to half of each kid’s age. For example, my 10 year-old receives $5 and my 13 year-old receives $6.50, obviously with this amount increasing annually as they get older. Looking at the overall monetary value on a weekly or even annualized basis, this amount seemed reasonable to us especially when we weren’t sure at first how it would be handled.
“Pay day” for my kids is every Sunday evening. I sit down with each one individually and we first review whether or not they completed all of their chores for the week. Second, I have them grab their notebook, which acts as a checkbook ledger so that they can manually keep track of all their earning/spending transactions. If there has been any spending during the preceding week, I’ll have them tell me how much should be in their account and then I’ll double-check by logging-in online. You’d be surprised by how often they are wrong – either because they’ve done the math incorrectly, forgot to enter a transaction, etc.
Note: At this stage I prefer that my kids use a physical notebook for keeping track of their money. I really like this tangible/manual method because, at least for me, I’ve found that it helps to actually write down numbers on paper instead of just seeing them on a computer screen.
We do not use cash in our household – each of my kids has their own debit card. Although I admit that physical money can be more visceral & concrete, I also fully acknowledge that we’re living in an increasingly digital world. I want my kids to be up-to-date when it comes to everything (including money) and don’t want them to be disadvantaged by using an antiquated system. Also, for purely selfish reasons, dealing with money digitally by transferring it to their accounts online is so much more convenient than having to keep a hoard of cash lying around the house.
Observations
Once money is transferred to their debit cards, my kids have free rein to do whatever they want with it. While this may sound a little crazy, that’s exactly what we want and it’s all part of the plan. My wife and I want our kids to have experience handling money in a safe environment; whether they choose to save it or spend it is totally up to them. Knowing that they’ll each only receive a few hundred dollars per year in allowance money, it seems like a relatively small price to pay to have them learn these lessons. In parallel, to further provide autonomy over their money, we’ve stopped buying them anything except for necessities to encourage them to use their own money.
We’ve had this system in place since March 2022 (when my kids were originally 7 & 10 years old) and it’s been interesting to observe over the years. At first both kids spent their money fairly quickly at the store (mostly Target) since all of a sudden they had “newfound riches”. But soon after I noticed my kids’ paths diverged – my daughter became more of a saver while my son became a more frequent spender. My daughter would save up for larger purchases, for special occasions (i.e. souvenirs on vacation), or to just have more money in her account. My son continuously spent whenever he had the chance, seemingly almost every week, on things such as Pokemon cards, candy, random toys, etc.
So am I mad about any of this? Absolutely not. Do I want to jump in from time-to-time and provide suggestions/commentary? Absolutely, but I don’t. Although it hasn’t happened yet, I am really hoping that my son runs out of money at least one time when he has a burning desire to buy something – I think this would teach a very valuable lesson about budgeting that I wouldn’t be able to provide through simply lecturing him.
What the Future Holds
We’ve been at this for a little over 3 years and I think things have been going well. The habit of tracking all of their financial transactions has been ingrained in my kids at this point (at least I hope so) and we haven’t come across any major financial “disasters” yet. I think everything will be fine until the day my kids get a real part-time job and realize that they will most likely make more in one hour at that job vs. what they make for an entire week of allowance. At that point their allowance may become obsolete. Hopefully they’ll already have mastered the skills of earning, spending, and saving so dealing with a larger amount of money will not be an issue.
The Squire
We talk about money fairly regularly without forcing it on our kids. We use the modeling method of teaching for the most part. However, when it comes to allowance for the kids, we haven’t got started yet, but we’re hoping to start within the next couple years.
My Experience Growing Up with Allowance
I’m not sure what age I started getting an allowance, but I do remember saving and spending it on various things. Honestly, it’s mostly a blur as to which of my toys and gadgets I got for Christmas, what I got for my birthday, what I purchased with gifted money, and what I bought with allowance money.
I do specifically remember a stereo that I saved up quite a while for, and I remember it being very much worth the wait. I would spend several hours every week listening to music on that stereo. I also enjoyed being able to make my own decision about what I bought with my own money, rather than having to ask my parents to buy me something.
Goal for our Kids
So, although we are looking forward to giving our kids experiential learning opportunities, at least partly through allowance, we have not decided on a method to start with yet. We don’t feel that we have to start giving them allowance right away, but I do think that they will be ready when we do.
First of all, by the time they turn 18, we want to be information resources for them, but we would like them to be able to make decisions when it comes to money. Between now and then, we want them to understand how much housing, food, clothes, utilities, gas, electronics, toys, and all the other various items are going to cost, and how that fits in their budget. We definitely don’t want to wait until the last minute to teach them.
Also, we want them to feel what it’s like to have money and spend money. It will be good for them… and us… to see what their initial tendencies are with spending and saving. Being able to make these decisions is a very important part of growing up and understanding the role that money plays in all of our lives.
Coming Up With A Plan
There are several factors that we want to consider, and my wife and I have some good ideas, but we still need to figure out the details. We also both probably overanalyze a little too much, and sometimes take longer than you would think coming up with new workflows. These include, but are not limited to the following:
- Why? What will be the stated main purpose or purposes we will give them for allowance? Responsibility they’ve earned? For learning purposes only? The wording and purpose will matter.
- When? When do we start? They may want to start getting allowance now, but will it do much good at this age? Would middle school be a better starting point, where we may be able to drop them off with friends and they would figure out what they want to do with it without pressure from us? Also, do we want to start both kids at the same time?
- Where? Where do we let them spend their money? Do we want to take them to several stores a week and/or let them spend hours searching through web sites and YouTube reviews to decide how they want to spend their money? Or limit it to a few stores a few times a month?
- How much? How much do we give them? Does each kid get the same amount? Based on age, grade, or something else? Things cost so much more than I remember. Obviously the amount will need to increase over time… until they start working…?
- Physical or Digital? Do we make physical withdrawals on a monthly or weekly basis from our account, or set up separate accounts for them?
- Interest? Do they earn extra interest from us on money saved? If so, how much? This may be the difference between whether they save some of it or spend it all.
- Invest? Do we let them invest it if they want?
- Chores? Would allowance be based on whether or not chores for the week or month were completed, or are chores just something they should do as being part of the family? Can they make more money by doing extra chores? Is there a limit?
- Categories? Is this money meant for spending on things that they want, or do we introduce other categories like college, donations, and clothes? Would we or they decide how much is spent in each category?
As you can see, we still have some decisions to make. My guess is we will come up with a plan, and then modify as needed over time.
An allowance can be a great way for kids to learn how to spend money and make money decisions without too much at stake. We hope allowance will provide some experiential learning that will help give them good money habits, and set them up for a healthy relationship with money.
Links/Resources
Reader Questions
- Did you receive an allowance growing up? If so, was it tied to the completion of chores? Did you have any restrictions on what you could spend your money on?
- Do you give allowance to any kids in your household? Why or why not? If so, what observations have you made about how your kid(s) spend or save their money?
Leave your answers or comments below – or email us directly at info@epicfinancialjourney.com