Giving kids money to manage

We've slowly started our children's financial education. I thought the easiest way to start would be opening a savings account. I suppose I was correct, but it was met with more resistance than I expected.

When we actually opened a savings account for them, I explained that we would deposit their money into their accounts. Then the bank would pay them interest. First, my son was horrified that they would lend “his” money out to other customers, and would he ever see it again? And then, could he have his original bills back?

That little anecdote made me realize that teaching them about money was going to be more challenging than I thought. See, I had lofty expectations of how we were going to give our children this fantastic financial education. But like any tool, you have to use money to really figure out how it works, what it can do (or not do) for you, and how to use it more efficiently. So our kids will need to have money to learn to manage it. And that's what I forgot: Where's the money going to come from?

An allowance history

Since our kids don't get much money as gifts, their source of money either has to come from us or they need to become entrepreneurs. At six and ten years of age, becoming a budding entrepreneur is not impossible, but it's certainly challenging.

As always with parenting, I stretch back to my parents' methods to evaluate their effectiveness — now that I've had several decades to study the results. To evaluate, I want to know what worked, what didn't, and what I should have learned in the first place.

As a child, I had specific chores that I had to accomplish. I didn't get reimbursed for those, but I did frequently ask my dad for extra chores to earn money.

Those chores were above and beyond and basically involved farming tasks that paid, depending on the job, $5 per hour for one job, $20 each month for another, or a quarter per bucket of corn I found in the field after the combine had made its pass through. (I can already tell these jobs will make a great base for the “When I was your age” stories that I just can't seem to help myself from telling my children.)

And I also became a little entrepreneur, enlisting the help of my parents to learn how to raise and sell rabbits and chickens. I had to pay for my own expenses, do my own chores, and I kept all the profit.

Lastly, when I hit the teenage years, I was given a clothing allowance. I had to (er, was supposed to) buy all my own clothes and could theoretically save any leftover cash. But I never had any leftover cash and actually usually had to borrow from the next month's allowance to make the clothing allowance work.

Other than the clothing allowance, throughout most of my childhood, my parents paid for standard expenses; but if I wanted something different or extra, I paid for it myself. Likewise, I understood very early on that if I wanted to go to college, I would be footing the bill myself. I also knew that I would be able to drive the family car until my next sibling got her driver's license. After that, I would need to find my own wheels.

Evaluating history

I don't think I am a personal finance superstar, by any means. I've done some really stupid things, getting myself into some really difficult situations. But I have done some things right, so it makes me wonder if the techniques my parents used were helpful or not.

I liked tying the money I earned to the task that I did. I could clearly see how my effort affected my paycheck. I also liked being in charge of running my own little businesses. Seeing how expenses ate away my profit, in addition to being 100 percent responsible for caring for my animals, was invaluable.

One of the other lessons from my childhood came when I arrived home late after a basketball game. I thought, since it was dark outside, my father would have completed my chore for the night (the one where I earned $20 per month).

“No, I didn't,” he replied.

“What?! But Dad, it's dark outside!” I whined and threw a tantrum.

He didn't lose his cool at all. “It's your job and your responsibility. And I am paying you to complete this job.”

I think I cried the whole time I finished my job, but it's obviously something I've never forgotten.

The least effective method was my clothing allowance. Number one, I felt like I never learned to be a smart shopper and make my money last. But the problem is that I didn't have to be a smart shopper. If I didn't have enough money, I begged money from my parents — and sometimes I got it. Maybe it wasn't enough money, or maybe it didn't really add any value beyond what I received from the other methods of money management I learned.

Sources of money for our kids

Because of my own experiences, I am not sold on just giving them an allowance without tying it to a specific chore. Some people — a lot of people actually — believe an allowance should be used to teach kids how to manage money without tying it to a specific chore.

And I get that. One disadvantage of tying money to chores is that the child could potentially only do chores they are paid for. Living in a household has its advantages, and there are some things that everyone should do without expecting reimbursement.

“Raising Financially Fit Kids” by Mary Hunt [Editor's note: Lisa pointed out that the correct title is “Raising Financially Confident Kids.”] offers an interesting approach. When she and her husband were raising their sons, they made them “money managers.” Once the boys reached a certain age, they were given a certain amount of money per month. This was money their parents would have given them anyway, but the boys were expected to manage it. Mary Hunt and her husband allowed their sons to make mistakes and, by the time they graduated from high school, they were managing several hundred dollars per month.

My short review does not do this book and concept justice, so read the book if this sounds interesting to you.

We're still tossing around ideas on how to give our children some money to manage. Which techniques worked for you or your children?

More about...Side Hustles

Become A Money Boss And Join 15,000 Others

Subscribe to the GRS Insider (FREE) and we’ll give you a copy of the Money Boss Manifesto (also FREE)

Yes! Sign up and get your free gift
Become A Money Boss And Join 15,000 Others
guest
26 Comments
Oldest
Newest Most Voted
Inline Feedbacks
View all comments
Stefanie @ The Broke and Beautiful Life
Stefanie @ The Broke and Beautiful Life
6 years ago

I love the idea of tying allowance to specific chores. I think it’s important to learn early on that not all work gets paid equally, even if it requires the same amount of time.

Beth
Beth
6 years ago

My siblings and I had an allowance and we had chores, but I don’t remember if one was tied to another. I do remember that as soon as we were old enough, we were allowed to have jobs “outside the home”. It started with a paper route, then baby sitting, then part time jobs when we were in high school. A portion of our earnings always went towards our education savings. I know some parents are against part time jobs, but those jobs taught us how to better manage our time as well as our money. I think one problem… Read more »

Brian @ Debt Discipline
Brian @ Debt Discipline
6 years ago

With our 3 children we have yet to give them money to manage, but plan on to soon in form of school clothing budget. We believe this is a good teachable moment. Since they will need a certain amount of things shoes, sneakers, etc But we generally try and speak to them about money topics that interest them. Mention new smart phones and you have their attention, ask them what they cost per month or how many hours they need to work to pay for one and they begin to understand why they can’t have the latest and greatest.

Gaming Your Finances
Gaming Your Finances
6 years ago

This really hits home since my wife and I are about to have our first child. We’re a bit concerned because we hope to financially independent soon and worry that our kids may never see us in traditional jobs. We want to make sure we provide them with a solid financial footing. Giving them an allowance in exchange for chores seems like the way we’ll go.

Jon @ Money Smart Guides
Jon @ Money Smart Guides
6 years ago

I remember my parents teaching me about money by opening a savings account. I had the exact opposite reaction as your kids. I thought it was the coolest thing to save money and have it grow. I remember going to the bank with $2 of my allowance and depositing it in the account and then getting excited when I made $0.01 in interest.

That never wore off either. I’m 35 and still get excited to see interest credited to my account, no matter how small in amount!

kathy
kathy
6 years ago

did you mean Raising Financially Confident Kids?Raising Financially Fit Kids is by Joline Godfrey. i want to make sure i read the right one.

thanks!

Lisa Aberle
Lisa Aberle
6 years ago
Reply to  kathy

Thanks for catching that, Kathy! Yes, it should be Raising Financially CONFIDENT Kids. I’ll have the editor change it. Thanks!

El Nerdo
El Nerdo
6 years ago

First, my son was horrified that they would lend “his” money out to other customers, and would he ever see it again? And then, could he have his original bills back? Haa haaa haaa– smart kid. That’s a real concern! Maybe explain the FDIC. As for the original bills–maybe play Monopoly a bit? A 5 is a 5 is a 5. A 20 is a 20 is a 20. Etc. At six and ten years of age, becoming a budding entrepreneur is not impossible, but it’s certainly challenging. At 6 maybe, but at 10??? 10 is not 6! I remember… Read more »

Nick
Nick
6 years ago

My 9 year old is currently looking for ways to make more money than his $6 per week allowance. I have now taught him how to mow the lawn (he is a big kid and it is a smallish lawn) and given him some other options. However, I am not interested in fighting with him every weekend about it, so I put it entirely in his court. If he doesn’t mow it by Sunday, I will do it and he won’t get paid. So far he is about 50/50 on going through with it. That said, he has been saving… Read more »

Jim
Jim
6 years ago
Reply to  Nick

Great story. I hope my 8 year old is as savvy! I would put a restriction of not spending more than 40%-50% of the savings account on one item. If he wants a big item, save a little longer. Definitely show the benefit of compound interest!!! The most important lesson in finance mgmt in my opinion.

Honey Smith
Honey Smith
6 years ago

I think allowing them to get extra money only if their “regular” chores (that they are not paid to complete) are done?

Laura
Laura
6 years ago

While I love the idea in theory of tying allowance to chores, that never worked well in our household. Ultimately we wound up giving DS an allowance starting around age 10 of $5/week; the amount has increased over time, with the annual increase being provided on his birthday. The important points were (1) he could spend it on whatever he wished because it was his money, and (2) if he ran out of money but still wanted a treat, we didn’t cave and buy it for him anyway. So he quickly learned that if he spent the whole thing on… Read more »

Tina
Tina
6 years ago

We opened savings accounts when the kids were little and put money in when we could. They later got allowance and we encouraged them to put a little in their account for a rainy day. When they both got part time jobs, we stopped the allowance and set a firm clothing allowance. Anything beyond the allowance was their responsibility unless something was damaged or broken like shoes tend to do. Recently, I took the kids to open checking accounts with debit cards and helped them set up direct deposit with their jobs. I told them how important it is to… Read more »

David @ Simple Money Concept
David @ Simple Money Concept
6 years ago

Well, my daughter is only 3, so it’s too early to give her anything to manage. However, I did start showing the different coins and the values they represent. After just one try, she asked me for the quarter the next day! I did start an UTMA account for her. That money will be hers when she turns 18. She can use it for whatever she wants, including wasting it on buying a fancy sports car. When she old enough, I will show her the account, and teach her about the investments inside. If I start the conversation early, she’s… Read more »

Carol
Carol
6 years ago

We had household responsibilities not tied to money because Mom wanted to show us that everyone helps when you are a family. We could earn money by doing things above and beyond our usual chores. If we won money we had to save 10% and give 10% to church or charity.

Kenny
Kenny
6 years ago

Allowances TIED to Chores does NOT work well in general, since one more chore than the ones defined and they will ask for money. We raised our kids (teenagers) saying that they are part of the family and life brings chores to life so that garbage does not collect in the home, liquid levels in the cars are checked monthly (!), toothpaste/toilet-paper/shampoo is brought up from the basement, dishes are washed, dishwasher is emptied out etc etc. So, what we did was to give them any amount of money they wanted till they sold us the idea of why they… Read more »

David
David
6 years ago

Check out the book “The Bank of Dad”. I have three kids and have used this method for them. One advantage though is that part time my wife and I clean a friends work office. The kids do that with us as their part time job. We then take that money, put it in the Bank of Dad and, well, read the book.

MissB
MissB
6 years ago

We don’t tie allowances to chores. The kids have their chores and they do them. They get an allowance each week. Since we’ve never had problems with them doing their chores (or rather, not doing them?) we’ve never had to use the money as leverage. From age 5 or so, we’ve given each kid $1/week x age (so a five year old gets $5/week). The money was split into long term (savings account, automatically deposited), short term and spend now. Extra money (birthday, Christmas, payment for a 5 on an AP test) can be put towards their choice of accounts.… Read more »

Rachel Davis
Rachel Davis
6 years ago

I am also still navigating how to teach my kids, decide how and when to give them money, etc. (The oldest is 7) When I was around 10-12 years old, my parents made me a budget and gave me a “salary.” I wrote checks and paid bills related to my recurring activities (horse bills in my case, dance bills in my sister’s case) and we had a clothes category… and I don’t remember what else. I liked having the power to save or spend the money and yes – you have to have money to learn how to manage it.… Read more »

AMW
AMW
6 years ago

I have a 17 and a 21 year old. They never got an allowance (everyone is part of the household and therefore responsible for it) but I owned my own business so if they needed money they worked for me. They also got a clothing allowance once they turned 14. This is a fabulously teachable moment as long as you don’t give in when they screw up. Once they turned 16 they got jobs and paid their own bills….cell phone, car insurance, and entertainment. They also had to save 50% of each paycheck and pay the bills out of the… Read more »

G
G
6 years ago

The biggest thing is actually Teaching the kid. Don’t just give him money for chores and let him figure it out. The problem is if you don’t flat out tell them the information you know then alot of times they won’t learn it. Do you want to pay 30 bucks for that Lego toy set at toysrus? OR Do you want to pay 15 to buy it off amazon? Teach him the money you save means you can buy more toys later. Teach him to surf deal sites like slickdeals to absolutely minimize cost. Teach him hey think really hard… Read more »

Gillian dunn
Gillian dunn
6 years ago

It is a great idea to make kids smart. They learn to manage money throughout their life.

homeowners insurance philadelphia pa
homeowners insurance philadelphia pa
6 years ago

Great read! It’s really important to teach kids at an early age how to manage their money. Parents may have different approach but if the goal is to really teach the kids, I think it’s okay. I can totally relate to your childhood. As a child, I was also given a “pay” for extra chores at home and it helped me value money.

I’m interested in the book “Raising Financially Fit Kids” by Mary Hunt. Hope it’s avaible online.

Thomas P
Thomas P
6 years ago

I think this is one of the most important things to teach kids, and I get the impression that it is widely neglected. Schools don’t teach much about personal finance, and it seems that once youngsters graduate and get out on their own, they barely know the first thing about budgeting and planning for expenses. I remember learning the hard way when I was about 16. I got my first job (at a fast food restaurant, which I hated) because my parents wanted me to start saving up for a down payment on a car. I opened a bank account… Read more »

Karin
Karin
6 years ago

I don’t have kids, but after a poverty-stricken childhood (more details here http://www.getrichslowly.org/blog/2012/04/29/reader-story-escaping-poverty/) and growing up with NO financial skills, I wanted to help my two nieces become financially literate. (They’re 10 and 8 years old.) So, I give them cash for birthdays, and encourage them to budget and save or spend as they wish. Unfortunately my plan seems to have backfired, as my sister (their mother) is raising them to spend the money the moment they receive it, and on things that they find on remainder racks rather than on items they truly value or would enjoy for a… Read more »

April
April
6 years ago
Reply to  Karin

Either buy a quality present that you know they want or give a savings bond. And talk a lot about how you manage your money and what you choose to spend on. How long it took to save for something they admire or how many hours of work it took to pay for it. Talk often about how long your quality pieces (furniture, clothes, etc.) last, etc.

shares