I realized something about three years ago. I was working on getting out of debt and in order to do that, I was pinching pennies everywhere I could. But what I realized was that I was failing my kids because I wasn’t teaching them money skills.
I was teaching them how to be frugal. I was teaching them about the difference between a “want” and a “need.” But if I wanted them to avoid the mistakes I made, I realized, I needed to teach them about money.
In order to teach my kids the value of a dollar, I had to give them an allowance. After three years of working out a plan for our allowance system, I have come up with three key steps that I think everyone should be using.
1. Make it simple to follow. I originally set up a plan that gave my children tokens for chores, good behavior and when they did extra things like read or exercise. I quickly found out that there was too much involved for us to sustain it. The kids forgot to get their tokens. I forgot to award them to them. Eventually it fell away and we forgot about it.
I decided to make it as simple as possible. Do the chores I ask you to do, when I ask you to do them. And they do, without complaint. They now get their allowance at the beginning of each week with a gentle reminder that it is for completing chores when I ask them to do them.
2. Give them an amount of money that makes sense. For us, it’s $1 for every year you’ve been alive. My 10-year-old gets $10 and my 7-year-old gets $7. This makes sense to me. Some people may find it to be too much money over the course of a month. If that’s the case then cut it in half and give them 50 cents for each year. It’s so much easier than giving them $1 for making their bed every day and 50 cents for taking out the garbage. To me, that doesn’t make sense (plus see #1).
3. Set up a budget for their money. You will not be teaching your child anything if you give him or her an allowance and then allow them to spend it on anything they want. Before you begin giving them an allowance, develop an appropriate budget that will have them saving money for long term plans.
What works for us is 50 percent of their allowance goes into long term savings, 40 percent goes into a spend bank and 10 percent is for giving to the charity of their choice. (This past week my children combined donated $65 to American Heart Association. They were so proud of themselves and I was too.) Find the percentage that makes the most sense to you and stick with it.
These steps have been in place in our family for nearly two years now. After a short time of them wanting to spend their money as soon as they received it, they are now showing great restraint and budgeting skills.
This past weekend my youngest son used the money he’s been saving for nearly a year to buy a toy he wanted while my oldest son was happy to be able to buy something he really wanted when it became available immediately online. He realized that if he had spent his money carelessly, he never would have been able to purchase something he really wanted. I would say that is a money lesson well learned.