allowance

As expressed in a previous post about our family chore system, you may have discovered that our kids don’t get a whole lot of spending money for being part of our family.  Fortunately, we live in Idaho, where the cost of living is reasonable, so they don’t need a ton of cash to survive.

Wait a second.  My kids don’t pay rent, they don’t buy groceries.  Until age 13, they don’t even buy their own clothes.  Every dime they earn is disposable income.  Why on earth would they need more than a few dollars a month in spending money?  It’s more than enough to buy their weight in candy every once in a while.  Cause we all know that’s what they’ll be spending it on.

Don’t blame the cost of living in California for the outrageous allowance you’re forking out.  Be realistic.

Ask yourself why you’re giving your kids money.  To demonstrate that hard work yields monetary rewards?  To learn how to spend and save wisely?  Those are my top reasons.

Do either of those reasons support breaking the bank to pay out their allowance?  No.  In fact, it might be counterproductive.  You see, scarcity requires discipline.  If your children are swimming in money and lack any sort of real-world allocations for that money(rent, gas, clothes, etc.), you’d just as soon not give them much of it.  Otherwise they’ll be sorely disappointed when they go off on their own at 18 and come to find out that there’s not much leftover for their daily Starbucks habit after the bills are paid.  (Unless you intend to pay all their bills, in which case, you’ve got even bigger problems and I can’t help you with those).

Your job is to prepare them to stand on their own two feet when you kick them out of they leave the house.  Here’s what we’re doing.  And crossing our fingers that it works.

1.  Teaching them to work.  This includes service in our home, church and community, but it must also include paid work so they understand the principle behind earning a paycheck.  See our chore system for details.
2. Pay tithing.  We believe that everything we have comes from God.  Paying a tenth of our earnings to Him demonstrates faith and gratitude for the multitude of blessings we enjoy.  As a bonus, it also helps us keep our priorities straight when determining how to use the rest.
3. Sock away a healthy chunk of it.  40% of every cent my kids earn goes into a savings account, not to be touched until they are pursuing higher education.  (When I was little, my parents had us save 20%, which was admirable, but I personally think it needs to hurt a bit more for it to become a habit).
4. Provide a matching program.  My kids get to do pretty much whatever they want with the remaining 50% of the earnings.  However, my husband and I provide an extra incentive for them to save more by matching whatever they put into savings dollar for dollar.  Keep in mind, we do not match the required 40% savings.  Only what they deposit of their spending money.  So, if Eve gets paid $10, she will pay $1 tithing, $4 in savings and have $5 leftover to spend.  She decides to save an additional $2 of her spending money, so we match it, $4 more goes into savings and she is left with $3 to spend.  It’s a pretty sweet system and you can tell by their account balances who are the spenders and who are the savers.  Strangely, there is a direct correlation with hair color.
5. Give your kids age-appropriate financial responsibilities.  Start small and increase their allowance to provide for said responsibilities.  For instance, at age ten, you might increase a child’s income a tad so that they can start paying for birthday presents when they get invited to parties.  In our family, at age thirteen, you get to open a checking account (to which we make a deposit quarterly) and start buying your own clothes.  Incidentally, this also benefits me because I will never have to go clothes shopping with a teenager.  In theory.  Once you get a driver’s license, you can start paying for gas, car maintenance, insurance, or all of the above.

This plan will look a bit different for each family, but the core principles are sound.  Give your children a leg up when they leave the nest  by giving them experience in the world of financial literacy.  Unless you want them sleeping on your couch until kingdom come.  If so, then, by all means, carry on.  Carry on.

Click here for a free printable on teaching financial literacy to your kids.