One of the most important things you can teach your kids is how to handle money because this skill — and not earning power — will determine their financial success. Allowance is one way to create many teachable moments.
There are many schools of thought on how to approach allowance: give $1 for every year of age or pay a “competitive” wage; use it as payment for chores, or keep it separate from chores. Well here’s a way to make your life easier, limit whining, and give your kids the power and responsibility to make choices. First, you need to track all the money that you spend on your kids. Every cent per month needs to be recorded: candy at the checkout, snacks, games, toys, books, sports, clubs, entertainment, etc. Then, decide which items they will pay for, going forward. For a five-year old, it can be candy, books, or snacks, for example; and for a 15-year old it can be clothing, entertainment and/or hobbies. That figure will determine what you give your child every week, but with the clear understanding that they will now pay for these items out of their allowance. What better way for them to weigh their choices, to understand the cost of goods, and to learn consequences? There can be no bail-outs (which is why paying weekly is a good idea) and they must abide by your rules when selecting items (e.g., “You can buy your own clothes, but if you buy something that I would not let you out of the house wearing, you will have wasted your allowance.”). In this way, you are truly giving them training in money/budget management.
Should you tie this compensation into chores? You can, but then you run the risk of your kids always asking you to “pay” them extra when they pitch in. Let your kids know that, as a family, you all work together to make the household run, and that they have set responsibilities to the group. Again, be clear about your expectations for chores. You can have consequences if they do not do their chores. They can lose privileges, such as going out with friends, or watching TV. You would know what would be the right “button” to push with your child, should you need to.
Give them the chance to make mistakes, to think things through, and show them that they are valuable contributors to the household. Teach them these lessons, and you will have raised confident, wise, responsible, and thoughtful adults who can handle money. All that from a few bucks a week – not bad.
We will be discussing and applying some of the suggestions outlined here, for sure. Something new we’re trying this summer is a job jar. The jar is filled with extra chores that need to be done and a dollar amount. It’s separate from their regular chores, which they get a regular allowance for. We’ll see how it works.