From one of the mustachian FB groups I recently saw a recommendation for "The Opposite of Spoiled". I got an e-book version from the library and overall it was a pretty good read. We've decided to go with the general allowance system he recommends, summarized as:
- Allowance not tied to chores
- $0.50 - $1 per year of age
- Allowance distribution across 3 categories (Spend, Save, Donate).
- Mostly equal distribution required. For the older kids, I require them to put at least $0.50 in each jar. That leaves them with $1.00 to allocate as they choose.
- Storage in clear containers so they can see the contents (we are using mason jars, since we had some on hand anyway - they decorated with some strips of paper with their name and the purpose of the jar)
- Routine distribution (we've chosen every Saturday morning, since it lines up well with the farmer's market)
Spend is "free money", so they can start choosing routine wants/needs, for example they often want us to stop to get timbits. We have not decided exactly what they are expected to fund themselves yet. For now it's just little treats or toys. The caveat is that stuff they bring into the house is either quickly used up (food) or it replaces something of theirs already, to balance space (toys).
Donate will be applied only when the jar is full. We'll look at a range of local / global charities. Our goal will be to balance between helping local community vs most efficient use of donation money.
Save is longer-term, but with young kids he notes going for a much shorter time horizon than "college". They have RESPs anyway, funded via the Canada Child Benefit (yes, the government can pay for [a bunch of] their education). Some other sections of the book looked at cases where they had scaled interest (e.g. 50% while under $10, 25% while under $X, etc). I liked this idea, since it highlights early the idea that interest can eclipse the contribution to accounts.
They haven't chosen what their target is yet - I was thinking something to the effect of 6-12 months, which is what got me started looking at projections to see how much they might have. I quickly saw the challenge in high-rate weekly interest - that 50% weekly rate had an APR of about 2600% if I did my math right.
We're using a quarter-based system (for distribution for now anyway). Looking at scaling of 50% under $10, 10% under 50, and 5% over $50, monthly interest paid in Dec is already $75. If I use a bi-weekly interest distribution, the scaling would be 50% under $10, 25% under $40, 10% under $100, 5% under $200, and 2.5% over $200. 5% bi-weekly is still an APR of about 130%, but I'm comfortable with that. For comparison, the interest paid in Dec would be just under $20, which better fits the goal I think.
We have 3 children, ages 5, 5 and 2. Even the youngest is getting the same system, although his math skills aren't quite caught up yet (counting to 10 or 20 is about his limit at the moment). Interest rates will drop considerably once they're a bit older and the initial effect is achieved.
Anyone have suggestions or warnings? First crack at doing allowance - don't want to accidentally cause problems.