As someone who has worked so hard to pay off $62,000 in debt in four years and is now living a debt free lifestyle, I sometimes worry about how I’ll pass on a debt free legacy to my children. How can I teach them about money so they don’t make the same mistakes as their parents? So far, I’ve spent a lot of time modeling good money management to them and talking openly with them about money.
I’ve resisted giving my kids any kind of allowance because I didn’t want to send the message that they are entitled to anything. However, my mother insists on sending the kids a dollar or two a week with her letters, so they can buy themselves a treat at our local store. This and birthday/holiday money has been their only access to money. Well, that and begging for things from mom and dad any time we are on an outing.
I noticed my kids were developing a spending pattern: Get money (from grandma or a holiday) and immediately spend it. This made me start re-thinking the allowance situation.
So, I did it. I set up a system where my kids could earn some money. I talked to them about paid work they must do (cleaning their rooms) and that I will also expect them to do unpaid work (putting away the dishes). I explained, this is because adults have both paid and unpaid work.
A friend of mine told me that she found it saves money to give her son an allowance because he asks for less stuff and she doesn’t feel like she has to buy him things he wants quite so often. After all, if he really wanted it he’d buy it himself.
I have to say, I have found out that my friend’s experience has been ours as well. Instead of money having no value to my kids, they can calculate that it takes them one week of keeping a clean room to earn $1. That life-energy is what gives money meaning. Otherwise it is just paper, right? But because we all put in something we do value (our time) to get the money, then the money now has value.
I think the allowance has helped my kids to understand the time value of money. I think this is another tool I can use to raise kids who won’t be sucked into the debt machine as adults. This is my hope anyway. I can’t really know until they are grown.
What do you think? Do allowances help kids understand money? Will a better understanding of money necessarily mean they will be debt free adults?
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(Photo by trenttsd)
I’m a firm supporter of kids earning their allowance – not just getting an allowance, but earning it. I think it gives them exposure to major financial concepts – working to earn money, saving, saving up for something they may want to purchase, and many more. The earlier they are exposed to these concepts, and able to practice them, the more likely they will be to be successful with them when it really counts.
We have a similar system to yours. We don’t demand that our son do chores though. If he wants to earn money, there is a list of things he can do to earn money. If we think of something extra not on the list, we might offer it to him. He is free to turn it down knowing that he earns $0.00 for not doing it. He loves money so he is usually up for tasks. He DOES however, have those chores that we expect him to do for free because he is a contributing member of the family. Most of them have to do with cleaning up after himself (picking up after himself daily, clothes in hamper, clearing the dinner table, dusting his room, etc) but I think those things are also just teaching him independence and how to take care of himself.
For instance, for money he can feed/water the family dog, empty trashcans that are not his own, dust rooms that are not his own, cleaning windows/baseboards, folding laundry, putting away groceries, etc. It works great for us because we touch both worlds of working for money AND personal responsibility.
And he tithes the money he earns weekly.
My kids live part time with me and part time with their dad. He gives them money for jobs but he pays at a VERY high rate. My kids always have a lot of money in their banks over there (not sure what his system is of saving vs. spending). Here they get money each week that they are with me. $1 per year of their age. They are not required to do anything specific but when I ask them to do something, they must do it. They put 1/2 in savings, then split the remaining 1/2 between give and spend. That’s usually $1 for give and the rest is spend.
They rarely ask for anything from me. When they do, I remind them of the spend bank and they start thinking about what they are saving for. Whereas they tell me that they always owe their dad money for something he’s bought them that cost more than they have in their bank.
I think the allowance and splitting it up is by far more effective.
If you’re going to give your kids allowance, make sure that they’re learning how to manage their money wisely. You can do this by using a website like KidsCash (www.kidsca.sh). On there, YOU choose the increment and the spacing of your child’s allowance, and then it is directly deposited into your kid’s account using PayPal, which is very secure and safe. Then, your kid can decide how much they want to save, how much they want to spend immediately in the marketplace (there are lots of fun games and toys and also iTunes cards), and how much they want to donate to any of the charities associated with KidsCash. There are settings that allow you to decide whether or not you feel like you have to approve every transaction, or you can give your kids full responsibility. However, the only money that they can spend is the money that you put on there. This teaches the kids how to budget and live within their means.