Smart Money Moves for Kids

Allowances-Do You, or Don’t You?

Contrary to the belief of many, an allowance doesn’t make your kids spend more money. And, it doesn’t necessarily make you spend more on your kids than you would otherwise. I believe that giving an allowance-regularly-is a great way for you to begin teaching your kids how to handle money.

Most parents want their kids to be self-sufficient. Earning an allowance is one of the first “grown-up” financial steps for your kids. Statistics show that the unemployed kid-one who does not get an allowance- has access to and spends the same amount of money as the salaried, allowance receiving kid does. The difference is that the salaried kid is empowered through control of his or her own money.

Allowances can enable you to control the money your kids receive; encourages you to discuss money and its use and misuse; creates a window to look at where your kids spend money; and is a springboard for laying the foundation for your kids’ attitudes toward spending and saving.

For kids, it reduces the “gimme” attacks; they learn that if they spend it, it’s gone and not obtainable through the 24 hour bank of Mom and Dad; they learn some of the rules of money-i.e., you don’t get it unless you earn it; and they learn to be more accountable with their funds.

When to Start
I’m for starting a very simple allowance for a mature three-year old, although your kids may not be ready until four or five. How to tell? Here are a few tips:

  • Does your daughter understand that a nickel is the same as five pennies or a quarter the same of five nickels?
  • Does your son understand trading? When you go to a fast food restaurant, does he understand that he must give money to get his meal?
  • Do a test allowance. Give you kid a dollar. Does she understand that it must last several days?
  • Does your kid understand that the grocery store does not take monopoly money?
  • Most preschoolers thank that bigger is best. Does your kid know that a dime is worth more or better than a nickel?
  • Has your kid started the “gimme” phase? If the answer is yes to this one, definitely start an allowance–now she can pay for her own gimmes.

If your child meets all the criteria just mentioned, it’s definitely time to start talking money. Talk with her about how and what she will use her allowance for. As the allowance payer, you should make a commitment to be consistent. Pay on the same day so that she can count on it being there, on time. Agree to an amount, with a review in six months.

The Jar Approach
Kids need a place to put their stash. Forget those cute piggy banks. They break and most are not see through. Check out your kitchen-peanut butter, mayonnaise and large peanut jars are great containers to use. They have wide mouths and lids, so little ones can put their arms in up to their elbows and not be harmed. Kids like money-they like to touch it (if they still are putting it in the mouth, this method is a pass!) and feel it. Let them.

We used three jars-one for Spending, one for Savings and one for Sharing. Younger kids like to decorate them, stickers are a favorite. Older kids will use words or glued on photos of a favorite sports figure or star.

How Much to Pay
Ah, the $64,000 question, or do we say million dollar question today? Here’s my formula: at our house, we paid $1 per year of age per week. You may think this is too much. But, in my house, there are strings attached. I recommend you do the same. Here’s what we did with Frank. He’s twelve years old, so he gets $12 each Saturday. First, he has to put 10% in a jar that is labeled Sharing. Next he divides the remaining $10.80 in two; $5.40 goes to his Savings Jar and $5.40 goes to his Spending Jar. 

His savings eventually land in the Young Americans Bank-where he can earn interest. As kids get older, the items they usually want cost more money. Savings are used for the bigger item, from bikes, snowboarding equipment and a new video unit. It’s his savings, not his college fund. It’s designated for long term savings. Something that could take several months, even years.

The Spending Jar is his. If he wants a movie, soda, candy bar, pizza, action figure, what ever, he pays for it. If he doesn’t have enough money, he doesn’t get it. He can’t come to the Bank of Mom and Dad. Having a regular allowance has made Frank more reliable when it comes to money–his and ours.

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