Thursday, March 3, 2011

Allowances: How We Do It

Until recently, we were the last people you'd want to ask about tips for teaching kids to manage money. We never had a consistent allowance-giving system, for two reasons:

1. We'd agree to give our kids an allowance, but on the designated day, we never had the right amount of cash on hand.
2. Even better, on the designated day, we'd completely forget. Because we're awesome parents like that.

Then, a real-life friend and erstwhile blogger (hi Camille!) recommended this book: The First National Bank of Dad: A Foolproof Method for Teaching Your Kids the Value of Money.

The Professor and I both read and decided to take the plunge. I realize there are divergent, even strident, schools of opinion on whether kids should be given an allowance, whether it should be tied to chores, etc. etc. etc. (I KNOW! Imagine that! Strident schools of opinion on a parenting-related subject!) But sometimes you just have to make a decision, jump on someone's bandwagon, and go with it.

So here's what we do now. The Professor, a.k.a. Grand Poohbah of Spreadsheet Making, created this Google Document, representing the "Daddy Bank Account," for each child. On Sunday, they each get money in the amount of half their age added to their account. No cash required.

Now, here's the kicker. They can spend all the money they want, without strings attached -- as long as the money is in the account. If we're at a museum, and in the gift shop Caroline sees a cheap dolphin pendant necklace encrusted with fake sequins, and it costs $6.99, and she just has to have it, we simply check her account. If she has the money, she can waste it on the piece of junk make this meaningful investment ... and learn the hard way that a) the necklace falls apart after two days, and b) she won't have the money in her account tomorrow for blowing on the next impulse buy opportunity that wafts her way.

OR, they can choose to save the money, keeping it in the Daddy Bank at a higher rate of return than the local credit union offers them. Interest compounds weekly. It's an incentive to save, and so far, we're pleased with the results.

Ian is learning that while he would love to buy himself a treat at the coffee shop we visit once a week during their improv classes, he wants to save up for the latest, greatest Nerf gun even more. (This is a logic any ten year old boy will instantly appreciate.)

We also encourage tithing, although we don't require it or specify exactly how much they should give. God loves a cheerful giver, right? Our personal belief is that it's our job to set the example, teach principles and lend guidance, but to let them own their charitable impulses. For example, they each have a child, of their respective age and gender, sponsored through Compassion International. We cover the monthly sponsorships, but the kids can contribute extra money for a birthday gift for their sponsored child.

That's what works for us.
Over and out.


Anne said...

Love it. Will have to check that out! We relate to numbers 1 and 2 so well it's ridiculous!

Raji P. said...

We've started doing it twice and it always fizzled out due to the parents, not the kids. This year we will try in earnest once again, on their birthday. I think we are all finally old enough to really get it.

I *love* the idea of sponsoring a child. What a beautiful way to practice compassion and empathy.

I was talking to Gayle Reaume of the Money Academy about this and she says savings is good, but not good enough, children must be taught to make their money *grow* by investing and making smart decisions, not just saving. I nodded earnestly and thought to myself, "hold on, let me get them saving first!"

B. said...

I really like this system...and I really like that they each get to "sponsor" another wonderful!

~cjoy said...

I'm glad you posted this - we have been failing at 1 and 2 regularly (patting myself on the back now)...and now we're trying to figure out ways to re-do our allowance system. Thank you for sharing!

Eclectic Mama said...

This is exactly what we do, and it has worked phenomenally well. DD went from buying the $30 flashing tiara at the circus (yes, I swallowed hard while Howard said, "It's her money; she can spend it as she wishes") and youngest son buying $48 of crap, um, cool spy gear out of a catalog ... to watching it all fall apart in their hands ... to looking at their account and taking stock and then thinking about what they want long-term.
The only difference is that we use Quicken (it adds allowance automatically, so we don't have to remember LOL). The kids also pay for all the birthday gifts for their friends (and half of family gifts)--which tells us exactly how important that yet-another-dreaded birthday party is.
Now money *truly* isn't an issue. We never, ever have to even discuss it.
Oh, and the kids use They got their initial kiva loans as Christmas gifts from us to get them started, and they keep reloaning the money. They love learning about the individuals they're helping. And they see them as people, not some large charity.

Bethy Lynne said...

You post reminds me of a book I'm reading called "Parenting with Love and Logic." Have you read it? There's a section about letting children make decisions, even financial ones while the prices are affordable to save them from making bigger mistakes later. I'm not at the raising-older-children stage yet, but I was impressed on a outing with my sister-in-law how she handled shopping with her 11 year old. My neice wanted what any logical adult could see were ridiculously impractical shoes, and my sister in law patiently listened to why she wanted them and then calmly said, "Well, what do you think you would wear them with?...etc." And she proceeded to ask questions to make her daughting "think" about the choice, but that it was her money if she decided she needed to buy them. In the end, the shoes remained at the store, and my neice and her mother had no quarrels or resentment, only communication and mutual respect. I was really impressed.

Michelle ~ Blogging from the Boonies said...

I love that you allow your children to help with providing gifts for your sponsored children. We don't give allowance, but my nine year old is always thinking of little goodies to send to our 9 CI kids, so I just buy those things from time to time. We also pay for all birthday and family gifts for them as well. I have been thinking about allowances a lot lately, though, so this is food for thought. Our 9 year old is so giving, I would bet she'd give most of her earnings away!


Awesome! Thanks for sharing this.