Allowances for Kids: Teaching Children the Value of Money
Published on - March 22nd, 2007 (by J.D. Roth) While browsing de.lico.us for stories about animal intelligence [blatant plug], I stumbled upon a financial anecdote at A Room of My Own:
Sarah has been eager to earn some money; she has a Jones for a new video game and her “account” (where we keep track of deposits — her allowance — and withdrawals) is into negative integers. I gave her a job to earn $5+. It was nothing onerous. She was enthusiastic at first. She worked for a few minutes (chattering more than working) then got bored. She wanted an easier, “more exciting” way to earn money. Groan. How does one help kids develop a work ethic?
I never wanted to be one of those parents to pontificate about “when I was a child…” But it is true that, when I was her age I worked hard at a paper route after school. I can remember being out well after dark and even trudging through serious snow to deliver the papers. The thing is … I loved it. It was probably the first thing I’d ever been successful at (other than reading). And it was the first time I’d ever really worked hard.
It is clear to me that children need meaningful work, something more than a bit of daily chores. It challenges them and gives them a sense of purpose. But how do I accomplish that?
This mother’s desire to teach her daughter the value of money is admirable. It’s important for kids to learn how money works in the real world. I like that she’s interested in finding “meaningful” work for her daughter, and wanting to demonstrate the connection between work and income.
Teaching kids about money when they’re young may prevent problems later in life. Earlier this week at MSNBC, Laura T. Coffey wrote about “what to allow when it comes to allowances”.
Got money worries in your adult life? If so, be honest: Are some of those worries related to stubbornly bad money habits you find tough to shake? Well, that just might be your parents’ fault. Financial experts say the money troubles that plague many of us as adults often stem from the way our parents raised us to view and handle money.
My parents modeled poor money habits. They didn’t do a good job of teaching my brothers and me about money via allowances, either. We had them from time-to-time, but they were irregular, and we could whine and moan to get more money. In her article, Coffey recommends that parents:
- Pay an age-appropriate allowance.
- Allow her to make her own choices and her own mistakes. It’s better for her to learn a lesson with $10 as a kid than with $10,000 as an adult.
- Pay him in cash. Kids are more apt to learn from the real, physical stuff insted of something abstract like a prepaid credit card.
- Give her specific financial responsibilities and don’t bail her out.
- Be punctual about payday.
- Be careful about tying an allowance to routine chores. Some experts warn that this can create a mercenary attitude in children where they want to know how much they’ll get paid for doing a chore. A better approach is a “salary” type allowance. Some people view chores as part of a family obligation and refuse to tie them to an allowance at all.
Coffey has another article at MSNBC that offers ten steps to creating a successful allowance. Also, here’s a piece with 15 ways to teach kids about money. Finally, an excellent way to get kids innterested in making money is to introduce them to entrepreneurship. What Color is Your Piggy Bank? is a slim book aimed at kids aged 10-14 who might like run their own business.
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I’ve had this concern with my daughter because I was not taught how to manage money when I was growing up. As a result I ended up thousands of dollars in debt in my 20′s. I have since paid off all my debt and have begun saving for retirement, just started much later than I should have.
In order to get my daugher in the habit of saving for retirement I have implemented an age-based allowance and require her to put at least 10% of her allowance into an account earmarked for retirement. She has also chosen save for the following: car, special item, Christmas presents and misc spending. She just turned 9 and has over $500 set aside for retirement. I know this isn’t much, but it’s more about getting her in the habit of setting money aside for retirement, no matter how little. It all adds up!
My daugher is 9, so she gets $9 per week allowance. In addition to her savings, each year she picks 1 thing to add to her list that she is responsible for buying herself. Currently she buys her own toothpaste, toothbrush, shampoo, conditioner and body wash. This has worked out great. It teaches her the value of items and she has to make sure she sets aside enough money to purchase any item she may be running out of. She is very proud of herself, and so am I!
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[...] about how I’d like to teach my kids to be more fiscally responsible. I ran across a great post today over at Get Rich Slowly with some good tips and links to helpful articles about allowances, [...]
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I’d start changing the idea that it is an “allowance”, and instead call payment for chores what it is: Commission. Don’t make allowance for your kids, and teach them not to make allowance for other people. Its part of that whole Steven Covey idea of being proactive and highly effective
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You can order free comic books that teach kids about money, savings, banking and debt from the NY Federal Reserve Bank (http://www.ny.frb.org/publications/result.cfm?comics=1). They take a few weeks to arrive, but they are free. I should also add that, by normal comic book standards, they are a bit cheesy.
A suggested book for parents or anyone is, The Seven Stages of Money Maturity, by George Kinder. Part of it addresses how attitudes about money come from parents and the impact it can have later in life. Some will find it a bit touchy-feely/crunchy, but if your open to a little soul searching, you could learn a lot about yourself.
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Children–even older children–don’t take business relationships seriously when the relationship is with their parents. Neither, surprisingly, do the parents. (One of the more useful lessons I’ve learned in my life. My mother refused to rent me a voice instructor when I expressed interest in improving my singing, because she’d worked her way through college as a voice teacher, and she’d darn well do it herself and save the money! I think I had two lessons, ever–I didn’t take her seriously, and she didn’t take me seriously, and it just didn’t work.)
A friend of mine is getting his house ready to sell, and has a whole bunch of little things he needs help with. My kids are going over there this weekend as ‘contractors’; I’m expecting that they will learn a lot more work ethic working for him than they ever did working for me.
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We call an allowance a paycheck. People don’t get money for simply living so we’re teaching the kids that money is earned.
Earning these ‘paychecks’ comes from chores that are considered above normal tasks. So if they do their laundry, the reward is having clean clothes, not money.
We actually take it a little further by picking a toy (for example) that they really want. We discuss how fast they want the toy and then we work it out on paper to determine what % of their paycheck they’ll have to save in order to get the toy by that date…
The only thing I am relatively concerned with is that word Paycheck. I don’t want the kids to think that the only way to earn money is by doing things for a boss (or parent). I am considering coming up with something that is a little more entrepreneurial-minded.
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Your de.lico.us link above seems to be broken.
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I’m not really sure what this has to do with allowances or money but one thing I thought about when reading the story about Sarah is that kids these days do have a tremendous amount of homework compared to when their parents were in school. And the comparitive difference will only increase as they get older.
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First, I’ll say that I have zero experience raising kids, so this might be a ridiculous idea.
How about giving kids a responsibility instead of giving them an allowance? I’m hypothesizing that just like adults, kids get more motivated when their contribution is valued. You mentioned the job wasn’t “onerous”. Perhaps that was part of the problem? Maybe the job was meaningless and she saw through you and figured it didn’t mean much whether she did the job or not? I’m just guessing here.
Sort of related to a management principle I believe in: don’t give people a job (or salary, or wage, or commission), give them a responsibility.
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When I was growing up, My sibling and I each had a weekly allowance of $3/week. My parents never bought us toys or other unnecessary items other than Christmas and Birthdays. When I wanted a $100 lego set or a $30 lamp, I had to save up my allowance to get them.
Now, when I think that there is something I want but I can’t quite afford it, it doesn’t seem like such a sacrifice to wait a few weeks or even a few months before I can buy it. I know what it’s like to wait almost a year of spending nothing to earn a reward.
My parents never did restrict what we could buy either. If I wanted to buy $3 in candy every week, I could have, but the promise of something bigger made it worth holding on to.
Sometimes when I was a kid, I felt like my allowance was too small, and that other kids got more than I did, but now, I’m happy that my parents gave me the financial education that they did. I can live well within my means and have plenty tucked away so that when there is something I really want to buy, I am not struggling to find the money to buy it.
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joshuat (#3): A money “allowance” isn’t “an excuse”, it’s “an amount put aside”. It’s a synonym for “stipend”.
The word just has two meanings, nothing to do with “making allowances”.
If you want to look at the message words send, though, start with calling housework “chores”!
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Exposing kids in small part time jobs should give them a taste at how to earn money. This will give them a sense of responsibility in budgeting their money, especially if you cut off their allowance to know whether they learned in managing their own money.
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[...] Allowances for Kids: Teaching Children the Value of Money [...]
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I think pay-for-performance is a good thing as long as you distinguish which chores are “you do it because your a part of this family” and what chores go above and beyond the call of duty. those are the chores that you can compensate your child for.
I also REALLY like the idea of encouraging entrepreneurship at a young age. It will help these kids get their way through college in more creative ways as well. Entrepreneurship can teach more money lessons (both the bad and the good) than any thing we could ever teach our children.
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I agree with the idea of giving children certain tasks to earn money. It can teach them the value of money and how to work hard inroder to earn it. They may realize how hard it is to earn money and teach them how to spend it wisely.
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[...] Allowances for Kids: Teaching Children the Value of Money ? Get Rich Slowly (tags: Children Kids Parenting Allowances Money) [...]
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[...] reading excellent articles on the subject of kids and money. The most noteworthy among them being Allowances for Kids: Teaching Children the Value of Money by JD Roth at Get Rich Slowly, Wise Spending Habits for Kids by JLP at AllFinancialMatters, and 15 [...]
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My daughter,whom is seven, recently took two very expensive toys to school and decided she was just going to let her friend “borrow” them. When I found this out I came to the realization that she did not really know the value of a dollar. So now I make her do a chore everyday for 50 cents. That is 3.50 a week. I told her now she has to buy her own toys and if there is something she wants, she has to save up her money to get it. Even if it takes several weeks. Maybe she will think twice about taking a toy to school and letting someone “Borrow” it when she used her own hard earned money to buy it!
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Once your teen is old enough, a Visa Buxx card is a great idea to control spending. If you sign up for it with a participating bank, you can transfer cash to the teen’s card for free, but you may have to pay a setup fee initially. Other banks (like Bank of America) dropped this and won’t even support it for a fee (another one of MANY reasons I might drop Bank of America soon!!!).
The advantage of this is that you can transfer an allowance to the card and teach the kids the importance of budgeting money….when the balance is gone, its gone until next allowance time. It can be used as a credit or debit card anywhere the Visa is accepted. It also limits the amount of cash that can be taken out at ATMs (transaction limit and a weekly limit), and allows a parent to track spending by seeing where the kids are spending the money and how much per transaction. If necessary, a parent can temporarily suspend the card making it unusable.
Based on all of this information, you can then talk to your teen about how much they spend, on what, and where, and teach them to budget their money from “payday to payday”. This could be invaluable in teaching young ones good financial management and “card usage”.
You can look on the “Visa Buxx” website for participating banks.
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We separate the allowance from the normal chores. We are trying to teach our kids that being members of the family and household brings with it certain obligations, including helping around the house.
We provide them with all the required basics, and provide them with $20pm “treat money” that they can spend how they choose. If they want something they will save it up over a few months. We’ve also been exploring learning about credit more recently. Allowing them to go slightly into debt, but then charging them interest. A very salutory lesson as they have discovered!
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