Kids, Money, & The Allowance
Another school year has begun, and I have been given the annual gentle reminder that my kids are getting older. My youngest has not only moved up a grade, but up to a new floor in the house because she’s a big kid now—“no longer a baby,” I’m told. She makes a good point, though, she is getting bigger. She gets herself ready for school, reminds her brother and sister to grab their lunches and me my keys, and tells me regularly that she can do it herself, “it” being most anything I try to help her with. This is my cue that she’s ready for a little more responsibility and independence. Time for an allowance. But for how much?
There are many factors to consider when deciding on the amount of an allowance, including age, how the allowance is meant to be used, and even the cost of living in your area. An easy starting place is one dollar for every year of life per week. Age 6? $6 per week. Now it’s time to see how many toys a $6/week allowance really buys you.
Getting Started
There are three common piggy type banks, or buckets: one for saving, one for sharing, and one for spending. I’ve chosen to stick with these for my children. Some parents also add an income tax or family tax bucket; I chose to let my kids live in denial for a little while longer. Our general rule is 20% to savings, 10% to sharing, and 70% to spending. With a $6 allowance, there might be a little rounding going on, but as they get older, the math gets easier. Some suggest using glass jars for these piggy banks, so kids can see the money grow as they save and shrink as they spend. We went with glass jars for the spending and sharing banks so we can get to the money easily when needed, and chose typical hard-to-open piggy banks for saving.
Time to Save
Saving can be hard, especially when you just started getting an allowance and there are so many toys out there to buy! Rather than forcing children to save, consider sweetening the deal with a “company” match. Offer to match your child’s savings up to a certain dollar amount. Explain how their decision to save will not only increase their allowance from the original decided-on amount, but grow their savings twice as fast. (It’s hard to say no to more of mom and dad’s money.)
Remember to Share
Once they have decided on how much they would like to share, let them do a little exploring. Help your child find an organization related to something they care about. Sharing with a cause that is meaningful to them makes it easier to give and more likely that they will make it a lifelong habit. Helping others over time will teach them to be grateful for what they have, and hopefully, to be more careful about how they spend.
Spending (ie. “All those toys and I will finally be together”)
When it comes time to spend, talk to your children about considering the value of the items they have on their wish list. Ask them a few questions:
How long will it hold your interest?
Is it something you need, or something you want?
Do you have enough money, or do you need to save for this purchase?
Know that, at first, these discussions may go in one ear and out the other. We’ve all been there—dollars just burning a hole right through your pocket. You want to spend it and you don’t care on what, you just want to spend the money! As a parent, you may feel the need to keep your children from spending compulsively, but it’s one of those lessons they need to live to learn. Let them make that mistake while they’re young, so they can learn from it and spend more wisely next time.
Teaching children at a young age to be responsible for their finances will give them the foundation to continue the same behavior throughout their life. And when the time comes, they will be more prepared for the next step…checking, savings, and beyond. Time goes by fast: they’ll have a credit card before you know it.
