This guest post from Neil Wyn-Jones is part of the “reader stories” feature at Get Rich Slowly, and a perfect post for Father’s Day. Some stories contain general advice; others are examples of how a GRS reader achieved financial success or failure. These stories feature folks with all levels of financial maturity and income. Want submit your own reader story? Here’s how.
Having recently completed my journey out of debt, I now have a new focus around all things money. For much of my life adult life I’ve let money control me as I bought into the “buy now, pay later” culture and became trapped by debt and strangled by the situation. Whilst by no means frivolous, I thought the money I was spending was making me and others happy, but day by day it was taking away my choices.
This was compounded back in 2008 when I went through a divorce leaving me to deal with an enormous home loan, spiraling debt , shared care of my two little boys, and a struggling business with outgoings vastly exceeding incomings! Cue the light bulb moment and the start of a route to responsibility.
With four hard years under my belt, I’m out of the other side of the tunnel and can clearly see the light. I’m no longer carrying the millstone of debt and money has now become a tool as I write a script for life on my very own blog.
So I suppose the question is: What financial wisdom can I pass on to my boys from the lessons I’ve learned during my transition from childhood to adulthood? (And from couple to single?)
As I did, they will ultimately find their own way and stand or fall by the decisions they make as they develop. But I guess what I’m looking to offer them as a father is some guidance.
Now comes the tricky bit. If they’re anything like me, they’ll be growing up with a slightly headstrong “I’ll do it my own way” approach. To be honest, I wouldn’t really want to change that, so it’s down to actions and not words. By implementing some basic principles early on in life, I hope they’ll see the rewards that can be reaped.
Money Needs to Be Earned
Recently I’ve introduced the boys to the principle of pocket money. I have no idea when is the best time in a child’s life to start this process, but with coin recognition on the syllabus at school, there would appear to be no time like the present. I feel age-based pocket money may have some merit, so it’s £1 per week for every year in age. Initially this £5 a week offering may seem a little high, but firstly it has to be earned via the completion of some basic household chores.
Don’t Just Give It Away
I hate to think how much money I’ve wasted over the years on the minor repeat purchases that quickly absorb the disposable income. My boys have already grasped the concept that if they sacrifice some of the smaller impulse purchases, they can save for the stuff that they really want.
For example, my eldest, who is approaching his 8th birthday, loves Lego Star Wars. He’s cut out a picture of the next set he wants and put it on his wall. Each week when the pocket money arrives, it diligently goes in the piggy bank and he takes another step closer to his goal. I admire this determination and commitment at such an early age, and I’m happy to see him spend his money on the things he wants. I suppose in a roundabout way I’m trying to teach the idea of targeted savings.
Expect the Unexpected
Okay, perhaps an emergency fund is a bit excessive for a five year old. After all, what sort of emergencies can really break the piggy bank? I don’t think it’s a bad concept to teach, though, so I’m trying to educate my boys that it’s important to hold back part of the weekly income for unseen circumstances. In all honesty, I’m a bit of a softy here and tend to come to the rescue for those childhood emergencies like broken toys or a new tyre for the bike. I’m going to have a bit of difficulty not being the “go-to guy” when emergency strikes or bail out is required!
Save for the Future
At five years old, it’s a little early to be talking interest rates and retirement. However, the principle of saving is a solid one that’s made so much simpler with time on their side and the power of compound interest to help them on their way.
Whilst the level of age-related pocket money dispensed from the “Bank of Dad” may appear to be a little high, 20% of this goes straight into savings accounts via online banking. By involving the boys in this online transfer, they see the money being moved, but don’t miss it as it is taken at source teaching the principle of automated savings.
Give
One of the items on my never-ending list of things to do was to sponsor a child. I believe that we live in global society with neighbors not restricted by boundaries or borders. I’m not going to change the world with the odd charitable donation or sponsorship here or there, but I may just go some way to changing someone’s life.
This concept really hit home this week after the boys and I signed up to sponsor a child in Haiti via a charity partner [note - this was done via Action Aid UK]. Our welcome pack arrived with a photo and background literature of the child we are sponsoring and straight away this made it real for the boys. They immediately rushed off to pen a letter and draw a picture to send to their new pen pal and they have agreed to donate some of their money to the 50p per day cost.
Be in Control
Experiences enrich life and are long remembered after the material Stuff has been scrapped. One of the most important lessons that I want for my boys to learn is that money can be a tool to enhance life if managed correctly. Sounds so simple, doesn’t it?
I’m keen to hear your thoughts on what is right or wrong in terms of financial guidance for children. I’m just learning about this myself.
- What age should this education start?
- How much pocket money is the right amount?
- How should it be broken down?
- How strictly should it be adhered to?
Lots of questions and not one exact right answer I guess, but hopefully by thinking about money and understanding it, my sons will be in a position to do what works for them in the future.
Note: My blog, neverendinglist, is in its infancy. It’s a list of things to do, some worthwhile, some random, some just silly. The list is writing the script for my life, motivating me, educating me and documenting life as I go. Get Rich Slowly has played a massive part in transforming my life and getting me into a position to be able to make choices for me and start living life.
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Love this post and look forward to hearing all the comments.
I am on the fence about having kids because it is such a huge responsibility and I am afraid of raising them wrong.
I see my friend’s kids and think that a majority of them are spoiled. One in particular gave her daughter a Tiffany anklet for her 1st bday! I wonder what the child will expect when they enter elementary school. I always keep my mouth shut though as I know better than to criticize parenting skills. I only express my opinions to my husband.
I believe that a financial education should be started early and that parents should be the role models. Case in point, my aunt and uncle rants at their 24 year old son because he does not save any of his income. But my aunt and uncle never saved while they were young. And they are nearing retirement age, they are still working because they have maybe $10,000 in savings only!
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My children are now 15 and 19 and there are two things that seem to have worked for us when it comes to finance.
1)As soon as you are of working age (15) you have to pay your own “bills”, which in their case is the extra $10 that we pay for your phone on our cell phone plan and your entertainment costs. If you can’t/won’t find a job, you can work for Mom (who is self employed) but she doesn’t pay very well. Once they have “bills” they look at their money differently.
2)Once they have a job, 50% must be put in to a savings account that can not be touched until they are 18 and the other 50% can be spent on anything they want. This has some major benefits on many fronts. They learn to save, they have some cash for college/car/emergencies/etc., and they make mistakes with their spending money BEFORE it will really impact their lives. Everyone has made mistakes with their money…let them figure it out before it is a major mistake. This also helps them with priorities and decision making- “Is paying $X.xx for that thingamagig worth it?”. This is something you can even do with their allowance money when they are younger.
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JD, just a heads-up, the header text for all of your reader stories contains a glaring typo:
“Want submit your own reader story?”
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Well, if we’re going to suggest fixes, this old newspaper copy editor notes that the second sentence of this post begins “For much of my life adult life…”
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One of the things I don’t see you mentioning, is what items do your kids have to pay for with their own money? That should be decided as a definite thing, especially since they get older. In my family, for example, our parent paid for basic clothes. Our allowance was fairly small. For our cousins, their allowance was bigger but they were expected to make ALL their own purchases, including clothes.
So decide what you cover and what they cover, and stick to it.
I’m sure at some point a child will run out of their monthly money and come to you for more. When do you given them more? Do you loan them money until next allowance day? (I wouldn’t.) It’s good to think about certain situations when they are small, before it becomes a huge deal to them and they “hate you” over not giving them $20.
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My daughter is only 21 months old. We give her the change that comes home from groceries and other expenditures. She delights in putting the coins in her bank and I always make a point of talking about how it’s important to save for what we want or need later. Does anything stick? I suppose only time will tell.
She also does not see mom and dad spend money wantonly. I think the most important thing for parents is to set an example by how we handle our own money. And then talk about what you’re doing and why. It’s wonderful that the author got out of debt when his children are small, so they will have a lifetime for him to model good financial sense.
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Marvelous post– sincere, well thought out. Great tips for children (of all ages).
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There’s a lot of different ways to manage the allowance system. I’m not sure that any are necessarily better or worse than others (despite an article I read recently on CNN Money doing a comparison– I don’t think the research they cited was well controlled), they just have different focuses.
We do a much simpler version that just focuses on the money management portion– he can do what he wants with the money, and it’s a small enough amount that he can’t have everything easily. So DC (5) gets 20 cents per year of age every week to do with what he wishes. Chores are not tied to it (he does chores whether or not he wants money). He doesn’t have to donate. He doesn’t have to save. It’s his money to do with as he wishes, including making mistakes. So far he’s used it to buy legos for himself and gifts for daddy at Christmas and his birthday. I used mine (10 cents/year of age) every week to buy candy at the corner store. I was very good at the now-and-later vs. lemonhead trade-off, as well as the candy-bar exchange rate.
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The importance of teaching financial literacy to children cannot be but over emphasized. Children need to be made responsible in the way they spend money and should be trained to manage money in hand better to achieve their goals. This way they will grow up into financially educated adults and save themselves from getting into deep bade debt.
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Hold hold chores are never paid for. That comes from my background- where they were paid for. Every one of my sibs struggle with keeping our own house because we could always pay someone else to do it.
My children were raised with an allowance (quarter per year of age until 7 and then a dollar per year of age per week). Try as you like- I think spending and saving come from someplace else. 18 months apart in age, one child now adult is an amazing saver and the other cannot hold on to a dollar if there is not a specific objective. Neither went into debt after their first bail out (both over did cell phones first year of college).
Both are wonderful adults. I am not sure how we did allowances had anything on how they turned out.
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I never got an allowance or anything that young. Instead I got the money my dad got for returning his beer bottles. It was a fun thing for us to do every two weeks or so because I got to go to The Beer Store with him and roll the bottles down those rollers they have. Once I was 12 or something I got $5 a week to mow the lawn. I think I am responsible with money but my sister who was raised very similarly never keeps her money for long. It quickly goes to a trip to the city or tickets to something.
I do not know what we learned differently but I think what you are doing sounds like it will teach your kids well. I especially like that you have them so excited about charity at such a young age. That may be the best lesson of all.
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I increased my daughter’s allowance when she reached late middle school age (8th grade, I think) to include an amount for a clothing allowance. She had reached the age where she wanted to spend a lot of money on clothes and shoes to be like her friends. I was a divorced mom then and needed to balance her “wants” with the reality of keeping a roof over our heads. She loved the idea of having her own clothing allowance and blew the first month’s budget on two pricey items. She became a much more frugal shopper after that and eagerly went to consignment stores and thrift stores with me. She had shunned those places before (when I was footing the bill) but now was gleeful when she scored an expensive pair of jeans for $5.00. Bottom line, she is now married with two daughters of her own. She and her hubby easily bring in almost $200,000 a year in income but she is more frugal that many her age and certainly in their salary range.
I strongly believe that kids learn by managing their own money and watching what their parents do. Be a great example to your sons and provide them with opportunities to learn and you will have facilitated them in learning skill that will benefit them for life.
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Delightful story…especially on Father’s Day. I can “relate” on raising 2 children, while being a single parent. Interesting perspective from a single dad half-way across the world in modern day England. You are doing a “great” job raising your little boys to become fine young Englishmen! Happy Father’s Day!
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I agree, he’s doing a sterling job – although after visiting the authors blog I notice he’s not English but Welsh. So it would be more fair to say he’s doing a great job raising his little two sons to become fine young Welshmen
To the Author: “Fod yn falch ohono chi eich hun” (Be proud of yourself)!
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Tony, well spotted and thanks
As any welshman will know there is quite a difference!
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Bravo for you taking this step! I was given an allowance only if the chores which were mine were completed on time and in accordance w/ parental standards. I was given basic clothing but that special dress for a dance, or the shoes I just couldn’t live w/out etc….was on me mostly.
My dad talked a lot about the rule of 72 and compounding but I heeded little. Those fundamentals were not taught in my classes hence when out on my own I made mistakes. But those “Dad lessons” began to take root as I was bailing myself out. Because of those I was able to see the error of my ways much sooner than most of my peers.
While they bought the McMansions (which they couldn’t hardly furnish if at all BTW),new expensive cars, every toy and trinket that came down the pike, and upgraded flat screens it seemed like a monthly, I bought a reasonable residence in an older but close to the city neighborhood, drove a nice Hot convertible Mustang used car which I still drive, have the same TV (it is a TV not the solution for world peace for goodness sake), and managed to keep credit card debt manageable. Now they have all lost their homes, yes, I said all, and are struggling still to wrestle the enormous debt. It will be years, yes, years before they can breathe again.
I missed out on nothing. I go out to dinner when I want. I bought a 2nd vehicle but still have the Mustang for daily commute, my house is comfortable and full of equity even in a down market.
Dad’s lessons eventually paid off even though I wasn’t receptive in the beginning. Thanks Mom and Dad for making me the independent and pretty smart gal that I am because you made me work for an allowance and make decisions about my money at an early age.
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My dad had us follow his Exxon stock to illustrate the idea of stock investing and compound interest. Of course, Exxon has always gone up dramatically, so perhaps not the most representative stock to pick! Still, a very exciting one that taught about how stocks can double and split and so on, and how a little money saved can compound into a big amount of money given time.
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Happy Father’s Day. I think your example will be their best education. However, I would agree with almost everything you are doing; we are following almost the exact same pattern with our 8 year old.
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What a fantastic post. Thank you so much for sharing your experience. What you are doing is truly important.
The goals and desires you have for your children, and your teaching them age appropriate money management, should prove very helpful to them in the future.
The other bonus you are giving them is your attention. You are including them in a discussion of something you value.
In the States, we heve several organizations dedicated to teaching fiscal literacy for children and youth. One of these is Jump$start. You might consider contacting them to see what they are doing and at what age of child.
I was particularly impressed by your comments about financial help for a child in another area of the world, and how interested your children were in this project. Children need to know that there are children living and learning in other sections of the earth. I think this is a great opportunity to introduce this idea to children.
Lori Blatzheim
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The allowance thing has been giving me fits for years.
If we give a weekly allowance without requiring chores first, the kids develop a sense of entitlement and assume money appears easily and without work. But if we tie allowance to chores, then the kids develop the mercenary idea that no one should ever help without being paid for it.
Being a stepparent, I have two strikes against me from the get-go: one, I didn’t get to start early enough, especially with the older child, and two, half their time is spent in a different household with a different financial culture. Given all of that, I’ve done the best I can. But I’ve never been entirely satisfied with the results.
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When I was growing up, we received an allowance that wasn’t tied at all to chores. But there were certain chores we were expected to complete simply because we were members of the household (making our beds, emptying the dishwasher, etc). However, there were other chores we could choose to do to earn extra money, and my mom would post a list of what each chore was ‘worth.’
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When I look back on my financial upbringing, at least in terms of allowance, I wish my parents had let me make more mistakes. I remember wanting to spend my entire allowance on a toy the day I was “paid,” and my Mom talking me out of it. But it would have been a much stronger lesson if I had bought it and suffered without pocket change for the rest of the month. Similarly, I wish I had been given the money to buy my own clothes (maybe twice a year) so I could have made plenty of mistakes there and learned about the benefits of sale-shopping, budgeting, and delayed gratification. In all areas of life, I find that making my own mistakes is what motivates me to change behavior. Why not let kids make financial mistakes when it’s still safe?
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This is an interesting discussion to me as my four year old is beginning to pay attention to money a lot more. This summer, I’ve started giving him a penny for every book we read together while school is out. He has three jars: one for giving (at our church), one for spending (big or little purchases), and one for saving (for much later – probably going in his college fund). We put a coin in each jar and I emphasize how we shouldn’t just save or just spend, but that money needs to spread over everything to cover our bases.
Obviously, that’s hugely simplistic and doesn’t really cover buying responsibilities or allowances. However, I really do think that unless it’s something the child wants beyond normal purchases (like an expensive, popular piece of clothing), the child is part of the family and thus, the family expenses. Being a child should mean that your needs are met, but not all of your wants.
I like the idea of the kind of allowances that has two parts: one, chores that you do because your part of this family and don’t get paid for. And two, chores that you do and get paid for. I clean the kitchen even though I don’t get paid because it has to be done, but I do work an extra job because I need (and very much enjoy) the extra money.
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“Being a child should mean that your needs are met, but not all of your wants.”
I LOVE this comment!
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“First National Bank of Dad.” http://www.amazon.com/The-First-National-Bank-Dad/dp/0743204808
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I love the paying interest idea, to stimulate savings, and we tried the Bank of Dad method.
Unfortunately, both sets of grandparents randomly flooded our system with huge amounts of money – even at a 10%/week interest rate, a quarter allowance can’t make enough profit off savings to look attractive next to random $5 or $20 gifts.
So I really think it makes a huge difference what your family/extended family situation is. My grandparents sent us quarters and pictures of chickens, which didn’t upset the applecart at home. My son’s grandparents believe in raising children frugally and grandchildren indulgently.
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I grew up in a family of four (1 mom, 3 kids). To make ends meet my mom had to be extremely frugal and those principles are now in-turn ingrained in me. But I started to slip as a young adult living on my own and earning a very low wage. I had it drilled into my head that I should never have a credit card balance that I couldn’t pay off each month. Unfortunately as my balance grew too large to pay off at the end of the month I actually didn’t really “get” how to reverse it and things just got worse.
Today I consider my own family’s debt issues to be modest. But again, despite living a simple lifestyle we didn’t really know how to kill our debt. The things that have been breakthroughs to us are truly living by our budget (we’ve always had one but we never really LIVED by it) and developing a ZERO tolerance for debt. My son is 3 now and I think that in addition to lessons on savings and allowances, it will be important for him to live by a budget when he is old enough to understand it, and to know our whole family’s budget and savings plans. And I think that we will also teach him that in the vast majority of cases taking on debt is not an option.
Ultimately my dream is for our family to continue to make sacrifices in our daily lives (no restaurants, second hand furniture, small home and auto, et cetera) but to be able to afford to travel abroad as a family. If/When we’re able to achieve this my hope will be that our son will understand the good things that can come from being thoughtful about how we spend our money.
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A big thank you to everyone who has commented on my story, it is interesting to read the different perspectives on what I firmly believe is a very important issue in education as whole. I am only too conscious that there is no exact right answer here, but believe the points made about leading by example are just as important as the basic principles I am trying to set out for the boys. Ultimately, they are strong-willed little characters and will find their own way in life, learning as I did by the mistakes they make along the way. By guiding them in some of the decisions early on in life hopefully they will be well equipped for the financial journey ahead of them.
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My mother-in-law gave me a great piece of advice regarding allowance. Don’t tie it to chores and don’t give it regularly. Her rule was that you are part of a family and everyone pitches in. I never want to hear my children say “how much will you pay me to do x?” we will give money for above and beyond things and its prenegotiated. They all learned very quickly that if they want more money they find jobs outside of home. Like the rest of the world. They”ve been paperboys with small routes on our block since my oldest was seven. I agree with letting them make mistakes and teaching them to save.
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Our 6yr old gets $5 a week. Not tied to any chores. Right now we’re just focusing on him managing money. Later we’ll introduce the idea of tying money to jobs.
It’s divided up as 40% ($2) to spend however he wants, 30% ($1.50) to save for a larger purchase, 20% ($1) to invest (saving for a far off goal…such as a car or university), and 10% ($0.50) for charity. We’ve glossed over investing, but he has a pretty good grasp of spending, saving, and charity. He knows that he has a certain amount he can spend however he wants, on anything he wants. And he has another amount he saves toward something large (such as a Roboraptor and a bike). And after two years, he finally had $50 saved up and decided to donate it to his class (he had tons of fun picking out toy cars to give to the class…it’s what his teacher said was needed).
And I’m really strict. If he wants something frivolous, he pays for it (my wife isn’t 100% on board…if she takes the kids shopping they often end up with a small “treat”…I’m so strict that he has to pay $2 for a Happy Meal toy). So $5 a week may sound like a lot for a kid that age…but he’s having to buy the majority of his toys. So in reality, we’re saving money. AND another huge plus…no huge meltdowns when we tell him NO in the store. He wants a $20 toy, that’s fine…IF he has $20. If not, we explain he would have to save up his money. So now it’s HIM saying no, and not us. Trust me, if it’s THEIR choice…they’re much more willing to settle for no.
I know he’s a bit young, so we don’t dive into family finances at this point. But I do explain to him basic concepts, such as mommy has to work to earn money to buy the things we need and want (from the house we’re living in, to the food we eat, and even his allowance). And have tried to explain some of our frugal choices to him (we could have more money to buy more toys…but mommy would have to be at work more, away from us).
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My son is 6, this is what we have been doing the last year of so that seems to work:
*he got 50cents/school day during the school year if he got himself up and ready by a certain time without help or reminders.
*every week at the grocery store he gets one extra food item that wasn’t on the list, only slightly depending on cost. In return he cuts coupons for me every Sunday and sorts them in to “yes” “no” and “maybe” piles for me to look at.
*We also pay for musical instruments, lessons, scouting, and sports fees. Other wants he has to cover from his savings or put on his birthday wish list.
*when we’re introducing a new chore, he gets a quarter for doing it until he’s mastered it, then it’s part of the routine and his only option for extra money is cleaning up trash other people drop in our yard, until there’s another new chore i want him to learn. Sometimes he suggests new chores (last was loading the dishwasher) because he has a savings goal he wants to hurry up on.
* he has to pay me a quarter to take him to a store that I don’t need to go to. But if he has at least $2 to donate I will take him to the humane society to pet the kitties & drop off his donation money.
* he can “lend” money through my Kiva account, and he likes helping choose the borrowers to fund. I keep track of this money on a post-it note because it’s never been more than $1 at a time. Then he gets that money back if the person has been paying back when he asks me for it (we check, but I’ve had 0 defaults so far.)
We tried a few other systems and this one isn’t perfect – if he were really on the ball he could earn 75 cents a day, which his dad thinks is excessive – but it’s a balance between so little he just ignores the whole thing and so much that he’s wanting to talk money constantly. Also the store payment rule is because he’s so paralyzed by choice that we were spending 2 hours a week visiting the Pokemon aisle at Target while he debated what was good enough to spend his savings on. I think he’ll be a careful shopper.
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This is a great story!
I also have small children that will some day need to learn about money. I’m not sure how to start.
I think you are doing a great job by setting a good example. I’m sure they are learning a lot just by watching you.
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This is timeless information. We too have been working on getting out from under our respective debts. (Strange timing with me being out of work due to a medical issue HOWEVER it is still working.)
Lately we have been thinking about how to deal with our young guy and this story really helps to help us ask ourselves some of those questions….THANK YOU FOR SHARING. It is nice to know we are not alone in this crazy world of buy now pay later!
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You cannot learn about savings early enough! My children learned to save 50% of all money they received and their allowance. It is a good habit to learn early.
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I’m opposed to paying for chores, but also opposed to giving money freely. I don’t want my kids to have to choose between sports/extra curriculars and a job because until they graduate, school IS their job. So I like the idea that was presented above about paying for getting to school on time (I’d add, they lose that for the day if they have to call me to bring in a homework assignment or book, because I was REALLY bad about that as a kid). Bonuses for high marks, just as we get in the real world.
I’ve heard suggestions before about matching savings that is targeted for college or future cars, and I like that as it reflects savings to a 401k. I also like the idea of paying for basic needs, but “wants” come out of spending money–as this is how the adult budget works too. Work clothes, school clothes, study shoes, call it 8-10 outfits per kid, those are covered by Mum & Dad. Special clothes and anything additional they will have to be on their own with their own spending money. Again, this is how the adult budget works, so I don’t think it’s unfair.
Mostly I want to teach my kids to talk to me, even when they screw up. Everything I’m hoping to be teaching is setting them up for success, but I don’t want them to get into credit card debt and not know what to do about it, and be afraid to talk to me about it. It helps that I want to home-school my kids, because I can teach them things like how credit cards and payday loans work, without them needing to experience it for themselves.
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I agree with others that have mentioned not tying the allowance in with chores.
Thanks for the article!
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Thanks everyone, some really good ideas to take away here. On point that seems fairly consistent however is that perhaps any allowance shouldn’t be strictly tied into chores. When I wrote this article one of the notes I made to myself was on the point of children being paid in return for labour. The word chore in itself has a negative connotation in relation to work. The principle I guess I’m trying to outline here more than anything is that if you want something in life then more often than not it will need to be earned. This is not a case of, if you do ‘x’ then I’ll give you ‘y’ but I do encourage both of my boys that some of the tasks within the household require a team effort. I like the idea of tying in some allowance payment to attendance and performance for education and as they develop may look to implement something along these lines.
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Great post! We implemented an allowance when my stepson move in with us at 15 years old. He was failing most of his classes at school so I tied his allowance to his grades. (He had never received an allowance before. Although relatively poor, his mother had always given him what he wanted if she could.)
Here’s the structure:
GPA 60-69 = 0$
GPA 70-79 and passing all classes = $10/wk
GPA 80-89 and passing all classes = $20/wk
GPA 90-100 and passing all classes = $40/wk
*The marking period is 10 wks so his allowance was also a 10-wk period. I set it up similar to what he how he would get paid if he had a job.
**Plus, he’s completely capable of a 90+ GPA, IF he puts in the effort. He did not. His capabilities were taken into consideration when establishing this.
He is graduating this year and with the exception of two marking periods, he has received an allowance of $20/wk throughout high school. (One marking period, he was ineligible and one he received $10/wk.) He also had chores (a first for him) but they weren’t tied to money.
That said he cannot save his money at all. He got a retail job last fall and spends his money as quickly as he receives it. We opened up a youth checking account for him when he moved in but he quickly overdrew it and quit using it until he got his retail job. He has targeted saving accounts set up but overspends and they remain empty.
For my daughter (who is 2), I plan to do a similar structure again tying it to her school performance but with more refinement. A % to go to savings, targeted savings, giving back, spending, etc. (I still have time to work it out.) Plus out-of-the-ordinary tasks to earn extra $. I want her to learn about money management before she is an adult and the risks are higher. And I think it is important that money is EARNED. I do not want it tied to chores because this is an example of how the family works together and it is the responsibility of each member of the family and household. Payment is not monetary in this case. But right now she thinks it is fun to just put the pennies into her piggy bank.
Again, GREAT post. I think it is important for these lessons to be taught to our children before they are adults. Too many of us have had to learn (and continue to repeat and relearn) financial mistakes the hard way.
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I recently read a very good article about this very topic (kids making/saving money). It suggested that rather than giving kids money every week as part of an allowance, encourage them to come up with ways to earn money around the house. This way, you’re teaching them to be creative in the efforts versus training them to be wage workers. I thought this was great insight.
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To me, that seems like a good idea in theory that would involve endless negotiation in actuality. But we have a pretty debate-heavy family as it is.
The thing I really wanted to avoid was the way i see adults around me trying to justify purchases instead of prioritizing them – it leads to debt when you’re “justifying” to a credit card instead of Mom.
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Perfect timing for a post about the “Bank of Dad”. My own father taught me a valuable lesson about finances by LOANING me money for school rather than simply gifting it. While he ultimately decided to forgive the loan as a graduation present, it reinforced the idea that access to capital comes with personal responsibility.
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The way my parents did allowance when I was a kid was to make sure my brother and I had to make hard choices about how to use the money. We got enough allowance in elementary school to buy our own school lunches every day if we wanted. If we bought lunch every day, we didn’t have any spending money for special snacks, toys, clothes, or other things we wanted but didn’t need. If we were willing to make lunch for ourselves (with parental help when we were too young to do it all ourselves) then we could have some or all of that money for buying treats during the week or saving up for something we really wanted. It was a great lesson in limited resources and figuring out when you wanted to be frugal so you could afford better stuff down the road.
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I have a four 1/2 year old, and for the last 4 months or so, been feeling out the whole allowance thing. He was starting to get crazy with all of the toys that he wanted in the stores, or, at yard sales, even when it was things that he already had, so, I started each Thursday, before we left for yard sales, to give him 6 quarters for his pocket, and explained that that money was for him to use on the toys and things that mommy didn’t want to buy.
At first, he would get broken or duplicates of things that I refused to buy him (though, I always buy “Good” toys, books, DVDs, his clothes, etc, this money is purely like gumball machine money, though sometimes, I give in on that too) but I noticed, after about a month, he started to stop and think before he wanted to spend his quarters. He’s actually stopped, and pointed out problems to me with some of the toys he was interested in, (A huge crack in a Capt America shield) that they people have halved the price for him, or, given him the small toys that he wanted. And now, after a few months of doing this, I can tell when he wants something, or just wants to buy it, because when he REALLY wants it, there’s no hesitation, he’s willing to part with his money. When he’s not sure, he asks me to buy it. Sometimes I do, (like, he bought an Iron man action figure for $1, I sprang for Batman) sometimes I don’t. (I refused to pay $1 for the Burger King hot wheels size race car he had duplicates of)
A really nice side effect though, is that while sometimes he does ask for toys in the store, and sometimes I do buy inexpenive ones, now, he’s all, I’m saving up for this, or, let’s ask for this for my birthday, or etc.
I’ve gone up to $2 a week, 6 quarters for his pocket money (which as of late, most of it’s been ending up in his piggy bank at the end of the weekend, though this week, we got robbed on a gumball machine 3 times before I could stop him) one quarter for his savings, and one quarter for his giving jar, money he’s saving to buy Toys for Tots gifts at the end of the yard. He’s taken to scanning the ground for loose change to pick up and put in his bank, and while I know that eventually, I’m going to be giving him more pocket money, I’m not sure when that will be, or how much. I’m thinking by the time he’s 5, about $3 a week will be what I do, along with the option to do some extra chores for extra money.
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A lot of good comments so far. Here is what I have found to be true from personal experience, watching what other people do, and watching my own kids.
First and foremost, You have to have a very clear goal in mind when giving an allowance. I don’t mean, I want to teach my kids financial responsibility. That is too generic. Make is specific. My goal is for my kids to be able to manage money on their own, and not be living with us when they are past college.
The reason the goal is important is that it will help you set up the system. So with my goal in mind, I just give the money to my children. No strings attached. I don’t force savings, or giving to charity. While these are noble goals, I don’t agree that forcing someone to do something will have the desired effect. More likely it will be the opposite. Forcing someone to save or give may actually enforce resentment of that activity. Also I don’t tie the allowance to chores. Chores are done because you are a part of the family and you need to pull your weight, not because you get paid.
My philosophy on money is that everyone will make mistakes. I see my job as a parent, is to give my kids the means to make mistakes and learn when the consequences are much easier to deal with.
Lastly be open with your children on your own finances. It is up to the parents to lead by example. I have sat down with my oldest son and gone through what the family’s net worth is and how it is allocated. I also went over a breakdown of the monthly inflows and outflows of money to give him an idea how much we save/spend.
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Clients are often asking how to educate their children on money. How to raise children that are not spoiled. How to instill good money values in their children.
As a financial planner, even I don’t always have all the answers. We have the same struggles with our own kids. These articles are always helpful.
Thanks!
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