Each week we give our boys an allowance. We don’t tie receiving this money to anything in particular. We consider doing chores and helping around the house to simply be part of living within our household; it is not reason for payment. I think it’s important for kids to have their own money to spend, and I think the time to start an allowance is whenever they begin to realize the purpose and power of money.
By giving your child an allowance, you allow them to make money mistakes now, while they’re young. This means that it’s easy to recover from blunders and that the consequences are small.
An allowance allows kids to get in the habit of saving. We mandate that our kids place 25% of all money they receive into their long-term savings. While different amounts may work for your family, we feel like this sets a precedent with our children. It teaches them to save for their futures. And if they always save 25% of what passes through their hands, they should have money to buy a house, start a business, travel the world, or whatever it is they decide they want to do when the time comes.
While we don’t mandate a particular percentage for other categories (such as giving – I want giving to come from the inspiration of their hearts, whether it’s a small amount or everything they have at the time), I think getting in the habit of a fixed percentage for saving is a no-brainer.
When you encourage your children to save from a young age, it lets them see the value of saving as they watch their savings account grow. This is a great opportunity to talk about compound interest, investing, and so on. (A fun book to talk about some of these concepts with young kids is If You Made a Million.)
After our kids have set aside the mandated 25% savings, the rest of their money is theirs to spend as they please. We place no limits on it. We may offer advice, but only once (that is, we don’t badger them with it over and over and over again). And our kids are free to take or leave that advice as they decide.
We let our boys make impulse-buying mistakes. It happens for both of them; they buy something and they quickly tire of it. Then we let them face the consequences and not have money for something they may really want. This helps them learn to consider carefully before making a purchase. Of course, at this point in their young lives we make sure they have the things they need.
We let them buy items poor quality that we know will break quickly (often with a word of warning). We watch those toys break, sometimes within a matter of minutes. Then we encourage our kids to reflect on whether or not it was a good use of their money. Would they do something differently next time? They get to experience first hand what happens when you buy an object of poor quality.
And then we have the amazingly fun times of watching our boys save up for something they really want. As a note, saving up for a desired item is different from the 25% long-term savings we mandate of boys. This saving-for-an-item is money they simply save in their wallets for a bigger purchase. Once they’ve reached their goal amount, we get to watch them have the pleasure and pride of knowing they saved their funds to buy their treasured thing.
For instance, my 9-year-old saved over $120 to buy an electric train set. It took him a very long time. When we went with him to purchase it, he walked into the store with his head held high, knowing he had worked hard toward the joy of that day. Saving that long also gave him time to consider whether or not this expenditure a good use of his money.
To learn these sorts of lessons, kids don’t need to get a huge amount of money. In fact, we pay our boys a fairly small allowance (each week my 9-year-old receives $2 and my 5-year-old receives $1). That said, we hope they will carry these early lessons with them. Then, when they are faced with larger amounts of money, they will already understand some of the things they’ll need to think about in managing it.
Do you give your children an allowance? Why or Why not?