Four finance bloggers weigh in on how they're teaching their kids to manage money wisely.
To give or not to give a child an allowance is a dilemma for every parent, and one that I’m currently weighing. So far, my husband and I have not yet begun doling out a biweekly payment to our children, though they’ve just reached the age when money is all-important and they’re desperate to figure out ways of making it.
On one hand, I dislike the idea of handing out cash – even small amounts – in return for help around the house, since all family members are expected to pitch in, no matter what. On the other hand, I understand how frustrating it is for them to have no source of income whatsoever, and therefore little money with which to hone management skills.
So I turned to the world of finance bloggers to gain some perspective and to learn what other families are doing. Not surprisingly, many families have drastically different approaches:
1) High Income Family pays kids based on age, matching their year with a dollar amount (i.e. the 5-year-old gets $5 per week). What struck me most is the kids have to ask for it between Friday and Sunday each week. If they forget, they don’t get it and can try again the following week. Why? Tom, the father, writes:
“We did this so that they learn to not be afraid to ask for what they want. They have to be polite and grateful but also assertive in their asking. We hope this helps later on when they negotiate salaries or ask for raises in their future employment.”
I just think it’s an interesting way of keeping them on their toes, and teaching them to take responsibility for the things they want. Tom’s kids are also expected to divide their money into give, save, and spend categories, with a minimum of 40 percent in savings.
2) Melanie at Mindfully Spent believes in giving her son an allowance because “money is too important of a topic to be taught passively” – a concept that resonated with me. It’s true that a child needs actual funds with which to practice saving and spending wisely. Melanie takes a hybrid approach. The biweekly allowance is split into two categories – the first $10 is a fixed allowance that comes no matter what, and the second $10 is variable, if he completes a predefined seasonal chore (such as mowing the lawn in spring and summer). If there’s a special object he really wants to buy, he has the option of doing additional chores:
“These chores are usually high intensity and include several hours of work. Because of this, special extra earnings didn't become an option until my son was old enough to tackle some pretty big chores. If we don't have extra work available, then we don't create it just so he can earn the extra funds.”
3) Amanda at Centsibly Rich does not give her kids an allowance. As a finance blogger, she is a supporter of financial literacy and the need to talk to kids constantly about money managements, but as a parent she considers herself responsible only for her kids’ needs, not their wants. She provides shelter, food, clothing, personal care, and other needs, always within a defined budget. If her kids want an upgrade on something, i.e. shoes, brand-name jeans, fancy shampoo, then they’re responsible for the extra cost above her budget. Amanda says, if they run out, there are no handouts:
“We’re willing to let our kids learn some lessons the hard way. While we’ll always make sure their basic needs are met and they are safe, we are big believers in natural consequences. If you spend all your money on a video game, you don’t have money to go out to eat with friends. If you run out of gas, mom gets to drive you to school.”
4) Mr. Money Mustache, one of my all-time fave money bloggers, has one child who does not receive a traditional allowance, but is paid a “salary” of 10 cents per mile walked or biked as part of family life. (I love this idea!)
“These tend to add up in a mostly-car-free family, as he already has more than 1200 miles on the little 20-inch tires of his mountain bike and we wear through quality shoes before growing out of them.”
Instead of having a piggy bank, Dad and Mom act as a bank, with a spreadsheet showing every transaction. To make a deposit, the kid hands his parent some money, and gets either cash or an online purchase made in return. In this bank, the kid earns interest at a 10 percent annual rate with monthly compounding.
Mr. Money Mustache doesn’t seem to stress too much about how the money is being spent, so it tends to go toward toys at this stage in life.
What happens in your home? Do you give your child an allowance? If so, what are the expectations and requirements?