Say YES to Kids' Allowance - Part 1 The Basics

Hi, everyone!  This is Lara Hammock from the Marble Jar channel and today I'm going to discuss giving an allowance to kids.  I'm doing this in 3 parts.  This one will walk through the basics and answer some general questions.  The second will tackle how to make it happen with a minimum of fuss (I now use iAllowance) and the third will discuss some tips for giving allowance to teenagers. 

Growing up, my parents were frugal in the extreme. We did our own repairs, didn't buy new clothes until I was well into high school, cut our own hair, grew our own food, etc. You get the picture. If you guessed that they were also not great about giving a reasonable allowance, you would be correct. They gave me a 25 cents a month -- even in those days, there was not much you could buy with that. 

I was determined to do better with my kids. Not so that they could have more stuff (although that would certainly be an adverse side effect), but because I view money management as one of the core skills to becoming a self-sustaining adult.  So, really think of allowance as an education tool as opposed to a reward for good behavior.  This allowance philosophy informs some of my later decision-making and definitely differs from the views of some. 

I have teenagers now, but I started down this path when my kids were very young. My son started receiving an allowance when he was 5 and a half. My daughter when she turned five.  Just an aside that I'll repeat -- you don't have to start when they are young.  Start now -- just start. I began by reading a bajillion books about allowance, mostly Christian Parenting books, interestingly. They seemed to be the crowd most interested in this topic.  And I came up with my plan based on a synthesis of their wisdom and my goals. 

How much to give?

I got this figure from a number of books -- most of which advocated doing a weekly allowance. A reasonable amount seemed to be half of their age per week.  Or twice their age per month.  For my 15 year old son, for example, that works out to $7.50 a week or $30 per month. They get raises on their birthdays.  

Should their allowance include long-term saving?

Considering this was an educational tool, I wanted to make sure I was actively teaching some core money concepts: don't spend it all at one time, save every month for bigger purchases and set aside money to give to charity.  I wish I could give source credit here, but this was easily 10 years ago, so I'm not sure I'll be able to find the original source, but this seems to be fairly common practice now. Rather than giving all of the money in one hunk, you divide it into 3 Deposits:

• 60% - Spend - just what it sounds like, this is to be spent anytime on anything
• 30% - Save - this gets saved up and can be used on purchases over $30. The idea is that kids this young can't really grasp the abstraction of investing or saving for college, but they will see that saving each month will allow them to purchase something of greater value later on. 
• 10% - Charity - once a year write a check to a charity picked out by the child (I think they call this "Share" now -- the word charity is out of vogue)

None of these percentages are absolute. And I wasn't going to be bothered with coins, so I divided it full dollar amounts.  More on the logistics in Part 2. 

Should allowance be linked to chores?

There is quite a bit of controversy on this -- people tend to feel very strongly about this topic.  My kids are required to do chores. But they aren't in any way linked to allowance. There are a couple of reasons for this. 1) Again, allowance is part of their education in my mind. It's not a reward.  I want them to learn how to manage money whether they do their chores or not. And 2) they HAVE to do chores because they live in our house. It's not negotiable.  In other words, they can't decide that they don't want their allowance this week, so they won't do their chores. I don't have an issue if others decide differently, it's just not the way I have my system set up. 

What do they use their allowance for?

Our rule is -- I buy needs, allowance is for wants. I love that with even tiny kids there are lots of conversations around what is a need and what is a want.  Do you need new sneakers?  That is a need, so we will buy them, but we will not spring for the newest most expensive shoe that everyone is wearing.  We set a baseline price and if my son wants to buy the expensive shoes, he can pay for the difference out of his allowance. My favorite part of this is that there are ZERO fights in stores.  Most of the chotchkies they want are obviously not needs, so they can decide whether they want to spend their allowance on them or not.  End of conversation.  Warning - you WILL end up with a billion worthless chotchkies in your house, which might drive you crazy, but it is part of the process. 

Can I use allowance to promote good behavior?

Absolutely!  Economic incentives and disincentives are prime tools for behavior manipulation.  When they were little, I disincentivized candy and sweets by making them 2x the actual value. In other words, if they wanted a lollipop that cost $1, they actually had to pay me $2 for it. I called it the "candy tax". And I still incentivize reading by paying for half of books. I call that the "book subsidy."  I still prefer that they get books out of the library, but i think reading is important -- thus the incentive. I also pay for things that I think are good for them -- even if they aren't strictly a need.  For example, for my ADHD son, I paid for half of his trampoline because I thought it would be a good way to expel some of his boundless energy.  I was right. I'm perfectly happy to accept their arguments on behalf of "good for you" purchases. But I may not rule in their favor. 

Does giving an allowance promote materialism?

There were DEFINITELY times that I thought my kids had way too much.  When my daughter was around seven, she could afford to buy a new Barbie approximately every month. We had mountains of Barbies -- Barbies coming out of our ears. I wrung my hands and fretted that having an allowance was spoiling the kids and making them super entitled. I had SO little in the way of material goods when I was growing up. Was I creating materialistic monsters?  Over time, I've come to accept that this money education does not necessarily train gratitude, but it does train responsibility and sometimes those concepts can be weirdly similar.  Or rather, responsibility can beget respect and gratitude.  And in the end, I decided that responsibility and money management competence were a worthy goal in themselves. 

Okay -- so those were the basics of our allowance system.  Join me in Part 2 when I talk about how to make it happen with a minimum of fuss.  Leave your questions and experiences in the comments section and thanks for watching!