- Who's Teaching Kids About Money? by David
- Schools? Parents? Read this article and decide what you need to do to help your kids.
- Give 'Em An Allowance by David
- So what's the big deal about giving your kids allowances? When should you
start? How much should you give? Should you tie it to chores? It's all here.
- Get Kids in the Habit of Saving Early, Not Late! by Sam X. Renick
Check out Sammy Rabbit's tips on teaching kids about money.
- Parents See Allowances As An Educational Tool by Amy Nathan
- This award-winning author shares her experience gained from writing the Kids' Allowance Book with Kids' Money parents.
- Money Management Starts With
Allowance by Caryl Horan
- Why give kids allowances? What should it cover? These answers and much
- Liberty Financial's Young
Investor Parent's Guide On Allowances
- Liberty Financial shares a simple, common sense approach to
- How to
Raise Money-Smart Kids by Elizabeth S. Lewin and Bernard Ryan Jr.
- Thinking about an allowance or looking to improve on what you're already
doing? You'll be glad you read this article first!
Who's Teaching Kids About Money?
By David McCurrach
Ask any teenager about money. Observe the habits and values they have developed. While schools and parents focus on other priorities, advertisers are shaping
kids’ attitudes towards money almost from birth.
Advertisers are the ones teaching kids how to spend, save and share. They invest hundreds of millions of dollars a year in television, radio, print, and Internet ads as
well as in product placements and store displays. All these efforts are designed to influence the way kids look at money and how they handle it.
Obviously, any saving and sharing lessons are non-existent. It’s all about spending. The lessons are:
Schools are limited in their ability to respond. Parents are the key. They have both the opportunity and the motivation to do something about it. The challenge
parents face is where and how to start. Advertisers have both sizable war chests and large, highly-skilled staffs to support their efforts. Parents have only their own
varied experiences (or lack thereof) coupled with numerous other demands on their time and energy.
- You can afford anything you desire.
- There are many things you simply must have.
- It’s your right and you deserve to have these things.
- Money is for spending.
- Credit is so you don’t have to wait.
What parents need is a simple program they can use to help their kids develop sound financial habits when it comes to spending, saving and sharing money. The
only chance their children have to avoid financial problems as young adults is to develop good habits while they are growing up. So much of what kids do as adults
is simply what they get in the habit of doing as children.
The key for kids to grow into financially responsible adults is to develop that financial responsibility while they are young. To do this, they must be given the
opportunity to manage money. They must be given responsibility for at least a portion of their own expenditures and be able to learn from their own financial
successes and mistakes. They must become stakeholders.
This may sound like a little much for a child and maybe even somewhat costly for parents. Really, just the opposite is the case. Right now, parents make most of
their children’s spending decisions. If Jane or Johnny wants a toy, the parents decide if:
Most parents go through this process hundreds of times each year. It frequently becomes a source of conflict and frustration for parents and kids alike.
- It’s needed and appropriate
- The price is right
- The money is available
Fortunately, there’s a better way. In order to teach kids to manage money, they must learn to make these decisions themselves. They must be able to plan their own
expenditures and shop for value as well as to save and share on a consistent basis.
Here’s a real-life example of how it works:
Here’s an easy way for parents to get these results with their own kids:
- Jenna is given a weekly allowance to cover her incidental expenses, including soft drinks. After gymnastics’ class, she asks her Mom for a dollar to
buy a soda. Her Mom reminds her that expense is included in her allowance. She responds, “You don’t think I’d spend a dollar of my own money on a
soda, do you?” and settles for a drink from the water fountain.
With this approach, parents limit the funds they are providing their children while they eliminate the constant requests to buy this and buy that. As their kids develop
financial responsibility, they tend to become more responsible in general. The results can be beyond what any parent would have ever expected.
- Review the money you are giving your kids for purchases and make a list of those items
- Give your kids the money and responsibility to make those purchases along with an agreed upon percentage of money to save and share
- Encourage them to set saving and sharing goals and keep up with their spending
- Monitor your child’s progress
A great resource for parents to implement this type of program is my book Allowance Magic: Turn Your Kids Into Money Wizards. It includes both a detailed
guide for parents and a workbook for their kids. This book is available online through Amazon and through the Allowance
Magic website. The website also includes much more information for both parents and children on this vital subject.
For younger children, there are also the Sammy Rabbit books and CDs to help them learn to “Save a dime from every dollar.” These entertaining and informative
materials are available online through Kids’ Money Store.
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"Give 'Em An Allowance!"
By David McCurrach
The Battle Cry For Kids' Money Management
How do our kids really learn to manage money? Most don't until they're
adults and then they learn primarily as a result of their own successes and failures.
There's usually no course at school, no helpful hints on TV and observing parents can be
confusing at best. Typically, parent's money management skills are often either not what
we'd like them to be or our finances are so complex that how we handle our money
doesn't mean much to a child.
To make matters worse, kids today have more money to spend and develop financial
styles at a younger age than ever. Before you know it, kids can develop bad habits that
can last a lifetime.
In fact, most parents don't deal with their kids' money management problems until their
children are adults. By then, these problems can be both costly and emotionally charged.
Young children provide parents the best opportunity to encourage good financial habits
and avoid problems that will develop latter in life if this area is neglected.
The only way kids will learn to manage their money is through their own experience and
the guidance you, as parents, may give them. In other words, kids learn from trial and
error and role models just like the rest of us. And if they can't learn as children, the price
of adult mistakes can be great in terms of money and relationships.
What Do I Do?
The first step, and the subject of this feature, is to Give 'em an
Here's why your kids need an allowance:
- Having a regular amount of their own income is the only way kids can learn to
- They need to be able to make mistakes when the cost is minimal.
- Knowing the limit of available funds forces kids:
- To think about how much things costs, and
- To make spending choices between the many things that they may want.
- They have more appreciation for the things they buy when they use their own
When Do I Start?
Once your child shows both an interest in and an understanding of the concept of money -
the fact that it can be exchanged for goods - they are ready to start learning the basics of
money management. For many kids, this may be as young as three or four. Their first
allowance should be given at a minimum of once a week.
How much should I give?
Some would say a dollar for each year of age. Others would suggest you match the
amount their friends get. Neither approach is really much help.
When coming up with the amount, try this:
- Determine how much money you already give them. If your kids don't
get allowances, you are managing their money for them by deciding what they will buy
and what they will do. Their role is salesperson and manipulator. Let them learn to
manage their own money. Stop doing all the work. Total up the amount you are giving
them now. Give that to them as an allowance and let them make their own decisions.
You'll save money and avoid some of life's major battles.
- Make a list of what they are expected to pay for with their allowance.
Once you have the amount, sit down with your child and make a list of everything they are
expected to pay for. This solves the conflicts that may come up in stores and as they walk
out the door to go to the movies. The total required becomes their allowance. As their
needs change, so can the amount. Be open to reviewing it when appropriate.
Keep in mind the fact that kids have three uses for their money - spending, saving and
sharing. Consider all three areas when you are coming up with the amount. In addition to
setting the allowance, this process puts an end to the constant requests to buy this and that
and to give them money to do whatever their hearts desire.
Should I Tie Allowances To Chores?
Do you believe your kids have a certain amount of responsibility around the house just
because they are members of the family? If so, those responsibilities have nothing to do
with allowances. In fact, if those responsibilities are not fulfilled, the loss of privileges
would probably be more appropriate than the loss of allowances.
How can a child manage their money if they don't know how much they will be getting on
a regular basis? On the other hand, if a child does not need their allowance that week, is it
acceptable not to do the chores? And finally, do we want your children to ask "How
much?" every time you ask them to do something around the house?
Remember, the purpose of an allowance is to give your children the opportunity to
learn how to manage money through their own successes and failures and the input of
As you can see, we have just scratched the surface on this topic. Complete our surveys, visit
other sites and let us know what you think. Tell
your friends to come see us.
Return to Contents
Get Kids in the Habit of Saving Early, Not Late!
By Sam X Renick
Sam X Renick is the author of two children financial books; has written and produced children’s music on the importance of saving money and is the founder of The It’s a Habit! Company, Inc., (www.itsahabit.com) a socially conscience publishing firm dedicated to sharing the importance of saving money and other life empowering skills. Sam is also a periodic contributor to the KNX 1070 Business Hour in Los Angeles.
If advertisers can successfully target children from birth with spending messages, then parents, grandparents and educators can and should be doing the same with saving messages. I hate to disagree with many education experts who feel fourth grade, or ages 9 and 10, is an appropriate time to begin discussing money management with kids, but it is just too big of a head start to give corporations and businesses who are increasingly targeting this growing market.
Traditional thinking ignores the fact that today children begin establishing habits and a relationship with money around the age of four. Let’s face it, ninety nine percent of that relationship has to do with spending and in all likelihood is the beginning of a lifetime of poor money habits.
Although personal finance authors may disagree on a variety of issues, one they all seem to agree on is that when you earn or receive money, the first thing you should do with it is put some away or pay yourself first. Can you imagine the impact on a child’s life and their parents, if they are taught this time tested principle from an early age? Isn’t it easy to picture educated, hard working, self sufficient, independent adults who own homes and businesses?
I know one of the great regrets of many adults is that they weren’t taught about saving as a child. In fact, it’s the main reason I started writing children’s financial books and music. Establishing good habits are essential to developing a healthy relationship with money. So how do parents, grandparents and educators help young children get in the habit of saving? Here are some suggestions:
- 1. Improve our own understanding of personal finance. Believe it or not, many adults don’t understand the basics of personal finance or money. No matter how well intended, nothing can be more harmful and consequential for children than providing them with information that isn’t correct. There is no shortage of myths when it comes to money, like it is good to get a large tax refund. So pick up a book on personal finance and get your family’s finances in order. There are several excellent books on the market. Find one that speaks to you. A few of my favorites are: The Way to Wealth, Benjamin Franklin (he’s pictured on the $100 bill for a reason); The Money Diet, Ginger Applegarth; Rich Dad, Poor Dad, Robert Kiyosaki, The Million Next Door; Dr. Thomas Stanley and Money Doesn’t Grow On Trees, Neale Godfrey. Nothing will provide better results for children than setting a good, consistent example for them to follow.
- 2. Communicate, communicate, communicate. Talk to your kids about money. Not talking to kids about money is one of the biggest mistakes parents make.
- 3. Books and music. Two activities that can begin from birth are reading to children and exposing them to music. Both may help to cultivate an interest in and create an awareness of money. Naturally, I strongly recommend It’s a Habit, Sammy Rabbit!, Will Sammy Ride the World’s First Space Coaster? and Get in the Habit! the two books and music CD that my company has published (www.itsahabit.com). Additionally, I suggest: Lucky the Golden Goose by John Wren; Alexander, Who Used to be Rich Last Sunday by Judith Viorst; Tops and Bottoms by Janet Stevens; The Giving Tree by Shel Silverstein; and The Trouble with Money by Jan Berenstain.
- 4. Coloring sheets and books. Visit your local credit union or bank and ask them if they have any coloring sheets and coloring books for kids. Many do, particularly credit unions.
- 5. Separate and count coins.
- 6. Piggy banks and saving jars. Get your child a piggy bank, or better yet create your own. If you are going to purchase one, my favorite is The Money Savvy Pig TM (www.msgen.com). I prefer this bank to most for two reasons: (1) It’s transparent. Seeing your money grow is a tremendous motivator for kids to continue to save; and (2) Contrary to the current trend of dividing banks into three compartments, it’s divided into four: save, invest, spend and donate. But better than purchasing one is to create and personalize your own.
- 7. Board games and cash registers. Monopoly (Junior), Moneywise Kids, Payday and Scan N Count Cash Register by KIDdesigns, Inc. are few good choices.
- 8. Wealth/goal journal and affirmations. Have your child create his or her own wealth journal. In the journal identify goals and draw or clip pictures of those goals. Divide goals in to short, mid and long term. Encourage your child to write about why the goals are meaningful to them. Create short, fun, repeatable slogans for your kids like: saving makes me strong; from every dollar, save a dime; change adds up; and money likes to grow and grow.
- 9. Read the Sunday paper and clip coupons. You might let your child share in the savings you get by using coupons. After all, who doesn’t like receiving a bonus or reward.
- 10. Recycle.
- 11. Lists and shopping. Lists are a great planning, thinking and organizing tools. Make kids a part of any shopping expedition. Always start by writing a list and establishing a target budget before going to the store. Allow kids to comparison shop for items. Point out the difference in pricing between generic and name brands.
- 12. Allowance. Be consistent. Check out Allowance Magic, by David McCurrach (www.allowancemagic.com).
- 13. Start an account. Take your child to the bank or credit union on a regular basis. Review banking and investment statements with your kids.
- 14. Purchase shares of stock or a mutual fund. Purchase a share or shares of stock of some of your child’s favorite products. You can purchase stocks inexpensively at Sharebuilder (www.sharebuilder.com). Vanguard (www.vanguard.com) is a good source for mutual funds.
In summary, the key components to raising money smart kids are: setting a good example they can follow; communicating regularly with them; involving them in engaging money related activities; and getting them in the habit of saving early not late!
Return to Contents
Parents See Allowances As An Educational Tool
By Amy Nathan
In doing research for The Kids’ Allowance Book (Walker & Co., 1998), I questioned more than 160 kids from around the country, as well as several of their parents to learn how allowances worked in their families. The youngsters report that they see an allowance as not just a great way to get spending money, but also as a way to learn how to manage money wisely. As one girl notes in the book, “My allowance helps me realize I need to be careful and not blow my money.”
For the parents I spoke with, the educational aspect of having an allowance rates high as the main reason they decided to give their children an allowance. Here are some comments parents made as to why they had started allowances in their family:
- “We decided to give her an allowance so she would learn responsibility and that you have to work for what you want.”
- “I hoped it would give her a sense of independence and teach her a bit of fiscal responsibility.”
- “To encourage decision-making on how to spend money. To learn how to save for things he wants.”
How these families have gone about organizing their kids’ allowance plans differs a lot. Some tie the allowance to chores; others don’t. Some pay once a week; others use a monthly payday. No matter what type of set up they use, many of these families admit to having occasional bouts of allowance breakdown. Allowances generally start out with the best of intentions on everyone’s part, but then for various reasons the allowance may bog down. Parents may forget to pay on time, kids may forget to do their chores, or everyone may lose track of whether or not the allowance actually got paid, leading to endless did-we-or-did-we-not-give-the-allowance-this-week debates. About one out of every four of the kids interviewed for the book has experienced allowance breakdown at one time or another, leading to new arrangements having to be worked out with parents to get the allowance rolling along again.
The Kids’ Allowance Book (written for kids age 8 to 14) presents the fix-it-up solutions these kids and parents have come up with, along with descriptions of the variety of ways different families set up allowance plans for children. There doesn’t seem to be any one exclusive “right” way to do it that would work well for all situations. The kids and parents that I questioned for this book report having good results with a wide range of options.
The key to allowance success seems to depend on a willingness to talk over allowance problems as they pop up, and a flexibility in scouting out ways to solve those problems so the allowance can stay on track. The various kid-tested plans and trouble-shooting strategies described in The Kids’ Allowance Book can help kids and families keep an allowance going, so youngsters can have an opportunity to make good use of this valuable
educational tool and learn important money-management skills that can last a lifetime.
© Amy Nathan, 1999
Return to Contents
Money Management Starts with Allowance
By Caryl Horan
Reprinted with the permission of The Bridges Initiative Inc. who originally
published this article in the Life Skills Information area of their Career Explorer web site.
WHAT IS IT with parents? They buy us a pack of gum here or a chocolate bar there,
they pay for the gotta have them $100 new jeans and a trip up the ski hill and then when
we turn 18, about the same time most of us leave home, they slam the wallet shut and tell
us it's time for us to learn how to manage our own money. Money management starts
with money, your own money, and even a preschooler can start to learn that a penny
saved is a penny earned.
Sometime early in life, usually around the age of three, a kid discovers money. They
figure out they need the shiny stuff in mom's purse if they are to get their paws on that
special toy they just saw advertised during Sesame Street. They know that money has
rewards, it has power but what they don't know is how much value it has. Most kids
figure that if they beg long enough, no matter what the cost, sooner or later mom and dad
will come through with the goods.
That's where the problem is. Most kids are never taught the skill of money management
until it's too late. Sometimes they get a few bucks for a birthday or Christmas gift but
most kids don't get a regular salary from their folks. First hand experience is vital to
learning smart money management skills and without the money, there is no
This is how an allowance fits in. Financial Advisor David McCurrach who has started up
a Web page called Kids' Money says a survey of parents shows that about 60% give their
kids an allowance. "It's shocking because the only way kids learn about money
management is by their own successes and failures, and you have to have money to do
Linda Barbanel, author of Piggy bank to Credit Card believes that as soon as your kids
are old enough to ask for something in the grocery store it's time to start up with an
allowance. "Whenever a child says 'gimme' you know he is ready to be taught to
Estimate how much you are already spending fulfilling requests to buy this or that each
week and then set that amount as their allowance advises McCurrach. One formula is to
give the child a dollar a week for each year of age however a four year old could start
quite nicely with two dollars a week.
It is critical that you sit down with them first and tell them exactly what they are expected
to pay for from their allowance. You can't tell them what to buy but you can say their
allowance is to be used in three areas:
Sharing - Church or charitable donations, birthday presents for family or friends.
Spending - Toys, candy, specialty clothing items and entertainment.
Saving - 10-20% of allowance needs to be put away to save for something they want that
costs more than the weekly allowance.
John Messervey from the National Family Business Council suggests using a journal to
keep track of exactly where the allowance is going. "Once a week write in dates and
amounts and show the child how and where they spent their money, how much is left and
how much they have in savings. Messervey points to several banks who offer "kids
accounts" where as little as a dollar can be deposited without monthly fees and the child
receives a bank book where they can keep account of their savings.
Many parents are prone to tie an allowance to weekly chores, but it is a mistake. "We
tried that" says McCurrach "it was a disaster. If the child doesn't need the money they get
into trade-offs like they won't clean the bathroom because it is not worth the two bucks."
Besides, it is impossible to learn how to manage money without a regular income and if
one week there is no money it blows the consistency.
Paying for "extra chores" is quite all right especially if the child is after a high-ticket item.
Just make sure that the chores are above what is usually expected of them and that the
money earned goes directly into saving for that particular purchase. The lesson is "I can
work harder for the special things I want."
Remember, the reason you are giving your kid an allowance is to teach them the value of
money and to set the foundations which will carry them through their adult years. Sure,
you could just give them the hard cash if you can afford it, but having saved for something
themselves they have learned patience, discipline and hopefully money smarts that will last
them a lifetime.
Take a look at Kids' Money for regular stories dealing with kids and finance.
Return to Contents
Liberty Financial's Young Investor Parent's Guide On
Reprinted from the Liberty Financial Young Investor Parent's
Guide with the permission of Liberty Financial Companies, Inc. Copyright
1993 by Liberty Financial Companies, Inc., 600 Atlantic Avenue, Boston, Massachusetts
02210. All rights reserved.
"We cannot always build the future for our youth, but we can build our youth for
the future." Franklin Delano Roosevelt
For generations parents have been doling out allowances to their children. Every family
has a different system. Some children are required to perform household chores in
exchange for a weekly stipend, others demand nothing extraordinary. Many compensate
children separately for performing certain household chores.
Many psychologists and parents agree that children can manage their money relatively free
of parental coercion. Most also agree that money shouldn't be used to change behavior.
Punishing children by taking away money they're owed or giving them extra money
because they've been "good" sends all the wrong money signals to your children.
Designing a Program That's Right For You
Deciding when and how your child should begin receiving an allowance or performing
household chores for extra money takes careful thought and planning. You may want to
regard both as business deals between you and your child. Some people think that
depersonalizing the process upfront reduces the chances for family squabbles later
If you don't believe in "allowances" don't feel compelled to pay just because your children
want them. But, be sure to provide them opportunities to earn extra money and learn how
to manage the money they earn or get from you.
Every family is different. You shouldn't feel guilty if your plans are less generous or more
generous than your neighbor's. Even though the rules for allowances and earning extra
cash differ from household to household, there are some basic guidelines that all parents
can follow. Here are several useful points to help you design reasonable and responsive
1. It's never too early to start.
If you've hesitated because you don't think your child is old enough to handle money, keep
in mind that recent studies have shown that most 3 year-olds are ready and eager to learn
about money and how things are bought and sold. By the time they're 5, many already
have started to save.
2. Establish who gets what.
Develop a consistent system that pays more to older children. But keep it flexible until
you hit on the right formula. In general, your plan should be more generous with older
children because their needs tend to be greater. Many parents seem to favor a plan that
increases at the start of each new school year. It's a good idea to present your proposed
plan in written form and seek input from all members of the family. Then, make
3. Describe the rules.
Each child should understand why she is receiving an allowance and what expenditures it's
supposed to cover. If you've decided to pay an allowance to your children because they
are members of the family tell them so. But also remind them of the general
responsibilities they have as members of the family. If the allowance is tied to household
chores, describe those assignments in detail.
4. Pay on time.
Paying on schedule will subtly teach your children the value of honoring one's
5. Allowance is not a control device.
Unless the allowance is tied to specific work assignments, you should avoid threatening
the withhold payments. If the allowance is related to work, from the beginning of the
program be sure to indicate in writing that the allowance may be withheld if the related
jobs aren't completed.
6. Develop accountability.
Some parents require their child to account for how the money was used. This kind of
activity can prepare a child to handle larger sums and manage a checkbook. As a rule, you
should avoid questioning the purchasing decisions of the child. However, you many want
to offer helpful advice on how the money can be spent more productively.
Return to Contents
How to Raise Money-Smart
By Elizabeth S. Lewin and Bernard Ryan Jr.
Reprinted from the Your Money Magazine, Volume
Sixteen/Number Six - October/November, 1995, with the permission of the authors and
Consumers Digest Inc. Copyright 1995 by Consumers Digest, 5705 North Lincoln
Avenue, Chicago, IL 60659. All rights reserved.
LOOK FOR ANSWERS TO THESE QUESTIONS
Kids and money is a hot topic. In fact, school districts are scrambling to add
financial education to their curriculums. But the best place for kids to learn about money
is the same as it's always been: at home.
MONEY IS A DIFFICULT, OFTEN TOUCHY, SUBJECT. Add kids to the equation
and most people blanch. And because no two kids are alike in their attitudes toward
money and many parents even disagree about finances, teaching children how to manage
money turns into an emotional debate that most parents would rather avoid.
Unfortunately, this avoidance can leave kids without the solid foundation they need.
Denise Chouinard of Watertown, Conn., is the mother of a 14-year-old daughter and 11-
year-old twin boys. Her family is typical when it comes to the issue of money--they all
differ in their opinions and attitudes: "My husband and I disagree about allowances.
He says the kids shouldn't be paid to do chores. But I think chores are an incentive.
Anyway, not even the twins are alike when it comes to money. Joshua expects to be paid
for everything he does, but he can't save. He spends it in bits and pieces as fast as he gets
it. But Jason's a saver--very conservative. He saved up $50 for his Nike shoes recently.
Erica is good, too. She's now baby-sitting regularly. She hates it, but she likes the money.
She's paid for some of her clothes and bought some gifts for friends on our family vacation
out of her savings."
But regardless of these differences, the Chouinard family is ahead of most--the kids are
already earning their own money and taking on some financial responsibility.
Unfortunately, most kids lack a clear concept of how to manage money. And, in most
cases, it's because no one has taken the time to teach them. The Joint Council on
Economic Education examined youngsters' understanding of monetary concepts
and found that kids, as a group, are appallingly ignorant. A heavy majority of high-school
students, the Council observed, "couldn't define profit." Yet, a
New York retail consulting firm predicts that teen-agers between the ages of 13 and 17
will spend $89 billion this year, with $34 billion of that amount coming from allowances.
It seems clear that the only lesson most kids have learned about money is how to spend
What accounts for this lack of education in our society? "The money scene in many
households is horrendous," says Anne Ziff, a family therapist in Westport, Conn.
"What should be cool, calm communication becomes complex emotional anxiety
and also a source of manipulation. Parents are often at opposite poles, and children get
mixed messages instead of good financial experience." The result? In order to avoid
the emotional strain, most of us duck the chance to teach our kids how to manage
Yet the lessons we dread are simple. For kids, money management can be divided into
four basic principles: earning, spending, saving, and borrowing. The key to teaching kids
is to start early using clear, practical examples. And, as your kids grow, so should the
lessons and responsibilities.
Beginning of Article
Earning Money. Anybody old enough to spend money should
get an allowance from the family funds. Probably by kindergarten, certainly by first
Why give an allowance? For one big reason: To help your youngsters learn how to
manage money. An allowance is not to relieve you of paying for some of your children's
wants or needs. It is the best and most hands-on method of teaching your children how to
spend and save. By using their own funds, their limit becomes real and tangible to them-
-they only get a certain amount each week, rather than having your seemingly infinite
wallet--and it will quickly become obvious that they can't have everything they want.
One of the biggest misconceptions about an allowance is that some parents cannot afford
to give their children "extra" money. However, if you look at an allowance
from a different angle, every parent can afford it. An
"allowance" is basically money that you're going to spend on your child
anyway, just given in a different form. Instead of paying for things at the time your
children want them, you pay them an allowance and let them decide how to spend the
money. The ultimate goal of an allowance is to teach children to distinguish between
needs and wants and to prioritize and save--a difficult lesson that will be needed
throughout life. You can look at an allowance in three ways:
1. Hands Off. Take it from Grace W. Weinstein, columnist for
Investors' Business Daily and author of Children and Money: A
Parent's Guide: "An allowance is the single best learning tool. Kids need to
handle it themselves, making their own mistakes." Once you've given an allowance,
walk away from it. The money is no longer yours, therefore you no longer control it. It is
now up to your child to decide how it should be spent or saved.
Beginning of Article
2. Chores for Pay. Many parents believe that their kids should
complete chores in order to receive their allowances--they don't want their youngsters to
view an allowance as an entitlement. However, experts like Ziff don't buy that.
"Children should understand that doing chores is part of membership in a family. In
healthy families, all members contribute and all contributions are valued," she
explains. "The grownups don't get paid for doing family chores--why should the
kids? And a share of the family income is an entitlement, just as food, clothing, and
shelter are entitlements to any family member."
Beginning of Article
3. Compromise: Hands Off/Chores. With this approach you
give children a basic allowance, but attach no responsibility for household chores. Instead,
make sure you provide regular employment that will allow your kids to earn additional
money: raking leaves, washing windows, mowing the lawn, washing the car, or doing
heavy-duty cleaning in the cellar or garage. Musicians Valerie and James Denn of
Wimberley, Texas, use this approach for 8-year-old Taylor. "He can use his
allowance as he wants," says his mother, "and he earns money selling our
tapes and CDs at gigs. By the time he was 6, he could make change, and he gets to keep
10 percent of what he sells. He's quite a salesman." The 8-year-old's understanding
of monetary value is demonstrated by his skill at finding Game Boy games, which retail at
about $30, in a local pawn shop for $10.
Only you can decide which approach--hands-off, chores for pay, or compromise-is the
best for your children and your family. But whatever you decide, it is important to remain
How Much Allowance? To decide this, put several factors
together: your children's age, how much their friends are getting, where you live--kids in
Iowa enjoy a lower cost of living than kids in Connecticut--and how much of the total
amount that you spend on your children you want them to start taking responsibility for.
Talk with your friends who have children the same age, put the factors together, and
experiment. You can always make adjustments later. You don't want your kids to be
frustrated by too little or overwhelmed by too much.
Spending Plan. Should you have your kids make a budget?
No. Instead, avoid that hated b-word and begin a spending plan. Help your children put a
spending plan into effect the day their allowance starts. Make it clear that we all must be
constantly aware of where our money comes from and where it goes. As you set up the
plan, use your own list of expenses as an example--specially the ordinary items, such as
groceries, gasoline, video rentals, birthday presents, laundry, and cleaning. Explain how
some goods and services are needed and unavoidable and cost close to the
same amount each time--gasoline, food, and shelter. Then explain how other goods are
simply wanted and their costs can vary--a clever but inexpensive birthday gift instead of a
more costly item, or a video once a week rather than three times a week.
Talk these expenses through with your children to decide what kind of spending they can
be comfortably responsible for as you begin paying an allowance. But, as you assist your
children in making a plan, it's important to remember not to dictate what they should do
with an allowance. Instead, allow your children to tell you how the money will be spent--
even if, as 8-year-old Taylor's mother says, "Sometimes I have to bite my
Write It All Down. When constructing the spending plan, be
sure to list everything your children are to be responsible for--in order to avoid confusion.
School lunches? After-school snacks? Video rentals? Movies? Also, build in flexibility
by adding a little cushion for what you didn't think of and for surprises--an unexpected
birthday--party invitation, or a slumber party with the kids chipping in for pizzas. The
cushion is valuable because surprises are inevitable, and it helps kids learn about choices.
And, don't forget savings. Help your children decide on a sensible .amount to save each
week--at least 10 percent of their allowance or total income.
Finally, encourage your children to donate some part of their allowance to charity or a
good cause on a regular or occasional basis. Learning that money can do good things for
other people is a useful lifetime lesson.
As your kids get older, their allowance and responsibilities should increase to prepare
them for independence. When helping your older kids draft a spending plan, include some
bigger-ticket items: clothing (maybe start with only one category, such as shoes or
accessories), sports equipment, film and processing, or vacation spending money. You'll
be surprised by the amount of responsibility your pre-teens can build into a spending plan.
And mistakes? While it's certain that they'll make a few, it's also certain that they'll learn
from them. And it's better to make small mistakes now than larger ones later. This is part
of the reason for a weekly allowance.
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Make Savings Visible. Imagine the your very young child, say a
4- or 5-year-old, wants a particular toy. Rather than saying no, explain that "we're
going to save for it." Cut out a picture of the item or draw one--even if you can't
draw a straight line--and tape the picture to a jar. For a week or so, let your child put your
loose change in the jar. When there's enough (you may want to add some folding money,
if needed to speed up the process), let your child take the jar--literally--to the store to buy
the toy. This is a practical lesson that will help children learn at an early age the
importance of saving money. Then, as soon as the allowance begins, build a savings plan
into the spending plan. Because your child has already experienced saving and its reward,
a savings plan will not only be easier to include once his or her allowance starts coming, it
will also make sense to the child.
What About Borrowing? Sometimes the built-in cushion or the
savings won't be enough, and Taylor or the twins will ask you for an advance on next
week's allowance. Whether or not you should give an advance is a controversial subject.
Beverly E. Tuttle, president of Consumer Credit Counseling Service of Connecticut, says,
"It just invites the attitude that has made America a debt society: Buy now, pay
later. It runs counter to the notion of planning." On the other hand, life is
unpredictable and you can't plan or save for everything. By giving an advance you can
help teach your child about borrowing and interest.
If you do opt to allow your children to borrow money, you must make it a learning
experience. For the very young, introduce the "visible IOU"--a glass jar in
plain sight, marked IOU. He or she pays back the advance to the jar. Put the IOU jar
beside the savings jar, so each time your child makes a payment, he or she is aware that
the savings won't increase until the borrowed money is returned. And, charge interest.
Maybe only pennies, but the borrower will get the idea--one pays a fee for borrowing
Balance Saving and Spending. Encourage saving, sure. But
work it through the spending plan so your kids will realize that all saving is postponed
spending. And knowing how to handle money means knowing when to hold onto it and
when to spend it usefully.
Certified financial planner Elizabeth Lewin and Bernard Ryan Jr. are co-authors
of Simple Ways to Help Your Kids Become Dollar-
- Use specifics to make your point. Next the you're buying
gas, point out the continually running meter as the tank fills. And, for example, when
your first-grader is learning numbers, explain the process: "Remember last
Saturday? It took 11 gallons and cost us $15.18. And then remember how we cut out
some of those trips downtown this week? Because we drove less, it took only eight
gallons when we filled the tank, and we saved more than $4." if your son or
daughter actually participated in reducing your driving time over, say, a week, put some of
the $4 you saved into his or her piggy bank.
- Analyze allowance vs. chores. If you would normally pay
an outsider for raking leaves or mowing the lawn, pay your child for doing the job instead.
But don't set up dishwashing, bed-making, or taking out the garbage as tasks an allowance
pays for. These should be part of the normal household responsibilities.
- Don't miss a payday. Make the allowance as dependable
as you expect your own paycheck to be--a regular amount on the same day each week.
Never delay or miss a payment.
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- Don't use allowance to correct behavior. If you need to
hand out a punishment, never dock or withhold an allowance. That confuses both
discipline and money-handling.
- Help your child evaluate wants and needs. Make sure
your children understand, even on the simplest terms, that some of the allowance is for
things they need, just as some is for wants. For example, steer your 7-year-old into the
habit of regularly buying his or her own toothpaste. Though a minor diversion of money
from household spending to the child's allowance, it helps establish the basis for a lifelong
understanding of managing money to achieve a sound balance of needs and wants.
- Remember, time is long when you're young. If you're
giving an advance on an allowance, don't stretch the repayment time. Two or three weeks
is forever when you're 8 or 9. Also remember that the younger the child is, the shorter the
time should be between starting to save and actually making the purchase--for
preschoolers, just a few days. But for older kids wanting more expensive items, saving
can stretch out longer.
FOR FURTHER READING...
Kids and Money: A Learning Guide for Children, Fidelity Investments.
This kit, available free by calling 800/544-888, supplies you with activity sheets for the
kids and information on basic concepts; for preschool and up.
The Totally Awesome Money Book for Kids, by Adriane G. Berg;
Newmarket Press; $10.95; 800/733-3000.
A Penny Saved: Using Money to Teach Your Child the Way the World
Works, by Neale S. Godfrey; Simon and Schuster; $18.95; 800/223-2348.
Simple Ways to Help Your Kids Become Dollar-Smart, by Elizabeth Lewin,
C.F.P., and Bernard Ryan Jr.; Walker Publishing Co. Inc.; $8.95; 800/289-2553.
Lifetime Book of Money Management, by Grace W. Weinstein; Visible Ink
Press; $15.95; 800/776-6265.
Return to Contents
© Copyright 2004 by David McCurrach. All rights reserved. Revised 8/17/04.