If you're reading this blog, you're probably pretty interested in managing your own money responsibly. And hopefully if you're a parent, you've also given some thought to teaching your children how to manage their money responsibly.
Children learn well by doing, and one of the best ways to teach them good financial habits is to give them a small amount of money to manage under your supervision. It's so much better to learn good saving, spending, and giving habits when your monthly budget is $10 than when it's $2,000.
And it's far less painful to learn from mistakes on a $10 budget than on a larger income.
I have four children, and from the time they were 3 or 4 years old, my husband and I have given them allowance so that we can teach them good financial habits.
There are myriad ways to handle allowance, many of them equally good, but here's how we make it work for our family.
Allowance is not tied to specific chores.
Many families have a system where children earn money by doing chores around the home, but we've opted not to tie allowance to specific chores. We expect our children to contribute by doing things like making beds, folding laundry, washing dishes and so on, but the allowance is simply a rate that changes based on the child's age. (Four-year-olds do not get as much as 13-year-olds because they don't do as much work as 13-year-olds!)
However, for above-and-beyond chores, we do pay our kids. Mowing the lawn, washing the car, and steam-cleaning the carpets are all paying jobs at our house.
We give, save, and spend.
If you learn to give, save, and spend your money sensibly, you're pretty well equipped to handle a grown-up-sized budget. So as soon as we give allowance, we give our kids a bank with three sections.
(This is the bank we use, but you can also use any container with three divisions. Or you could use three separate containers! Your system doesn't have to be fancy or expensive.)
You can use whatever percentages you like, but we put 10% into the Giving section, 40% into the Saving section, and 50% into the Spending section.
This gives our children practice in the art of giving and saving, but also provides them with enough spending money to keep them from wanting to completely give up on saving!
The giving money generally goes to our church and the saving money is for large expenses (a big toy, a musical instrument). The spending money is available for them to use however they want.
No debt is allowed.
When the spending money is gone, it is GONE. There's no borrowing from the saving category, and there's no visiting the Bank of Mom and Dad.
Sometimes our kids blow through their spending money and then are in the painful position of not having money for an item that they want. Though it's tempting to rescue them, we know this minor pain teaches lessons that may save them from major pain in the future.
Not allowing them to borrow from us also helps them to learn to plan ahead. For instance, if they want to buy something during the month of November, they have to first think about whether they'll have enough left to buy the Christmas presents they want to give. And my son, who has reptiles to feed, has to consider whether a purchase will leave him enough surplus to buy crickets for the rest of the month.
We don't give huge allowances.
If we paid our children large allowances each week, it would not be at all difficult for them to be satisfied with their spending money or to stay out of debt. Though we could afford to give them more, we prefer to keep allowances modest so that they'll know what it feels like to have to save up for an item or to have to forgo an item in order to stay out of debt.
Odds are good that when they leave home, they won't have generous salaries, and if they've experienced nothing but generous allowances through their childhood years, they may not be prepared for living on a tight budget.
This is how allowance works at our house, but of course, you should do what works for your family. What matters most isn't specific percentages or whether or not you tie allowance to chores. The important thing is to give your children a safe place to learn money management and to make money mistakes so that they'll be ready to handle money on their own when they leave the nest.
Kristen writes about cheerfully living on less at The Frugal Girl. In addition to pinching pennies, she homeschools her four kids, photographs everything in sight, rehabs thrift store finds, and spends far too much time in the kitchen.