Author Topic: Allowance for Kids  (Read 3026 times)

ginjaninja

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Allowance for Kids
« on: January 19, 2018, 07:35:23 AM »
I wanted to share with all of you how my parents handled allowance for me and my sister growing up.  I plan to do it with my future kids too because it taught me so much about money and really set me up for future success.

It started from the age we were 3, it never depended on chores (they were not optional and therefore not linked to money).

Every week we would get the same amount of money as our age.  So when I turned 3 I got $3/week.  When I turned 4 I would get $4/week and so on. 

The catch was that we had this cool bank that looked like a stop light with 3 different sections.  The red section was for invest, the yellow was for save, and the green was for spend.  There was a zip tie on the red section and we got to take this money out on our birthday, count how much money we had saved throughout the year, and then our parents invested it in mutual funds for us.  Save was for the new bike, computer game, or other big purchase for a 4 year old (Bratz dolls anyone?).  Spend was for candy at the grocery store, something small that we wanted when we would go out with my parents, etc. 

We had to do this with ALL of our money: allowance, Christmas and Hanukkah Money, birthdays, etc. 

When we would go to the store my mom would ask if we wanted to bring our money.  When I wanted the candy bar at check out, the answer wasn't "no" instead, it was "well do you want to spend your money on that?"  I thought about it and would rather keep my $1 that would take another week to earn. 

When I turned 21 my parents gave me the mutual funds they had been saving (~$5k) and I was able to fund my RothIRA for that year.

This was such a fun way to learn about money and the value of it.  When we were school supply shopping she would ask if I wanted the crayola markers for $2 more than the store brand?  When I understood a little bit more about money I opted for the store brand. 

While I still use the concept of Invest, Save, Spend my percentages are a little bit different now as an adult, but the mindset still remains. 

How did others use allowance growing up?

boarder42

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Re: Allowance for Kids
« Reply #1 on: January 19, 2018, 07:43:15 AM »
mine wasnt linked to age but we had envelopes - invest - big purchase(what you're calling save thats not really saving) - gifts for others - spending. 

i'm going to take it to the next step with our kids and do something similar to what MMM did and just give them return on what they keep in the bank so in addition to not spending 1 dollar on that candy bar its going to accrue 10% interest. 

i may also match their contribution to their investment account - and give them the option of how much money goes in each envelope

on the personal note i dont think of money this way at all anymore i'm just a natural saver thru probably what the system taught me.

acroy

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Re: Allowance for Kids
« Reply #2 on: January 19, 2018, 08:14:00 AM »
Interesting

We are doing a behavior/performance based allowance. They save 50% and can spend 50%. We pay them cash, which they are then responsible for. There have been some instances of lost wallets etc very sad, but teaches a good lesson also.

The 'save' portion exists only on Excel till they hit $1k at which point they get a Vanguard account with STAR VGSTX shares. The drawback is this is not very 'visible' to them until age 10-11-12 or so and can appreciate it.

mxt0133

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Re: Allowance for Kids
« Reply #3 on: January 19, 2018, 08:27:00 AM »
I started the weekly allowance at 4 for my two oldest at $4.  Half goes into saving and half goes into spending.  Initially when they would ask to get something at a store, the rule was to wait a week if it cost more than $1 or $2.  If they asked for it a week later and they had the money for it they can buy it.  However, it would have to be approved by us, no knives, flame throwers, or tubs of candy.

The savings is put into our online checking account with their names on it that I show them every few months.  Any cash gifts they get half also goes into savings.  The amounts are getting to a point where I will put it in an investment account and start to do some type of matching.

Does anyone have suggestions on how to go about doing that?  Should I do a 529k or a after tax savings account?  Should I keep it in my name or open a custodial account in their name?


soccerluvof4

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Re: Allowance for Kids
« Reply #4 on: January 19, 2018, 03:18:47 PM »
We dont do allowances and agree chores are chores. Grades, attitude etc..is more our basis to give them money. Anything they get or earn outside of that they get to keep 50%

La Bibliotecaria Feroz

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Re: Allowance for Kids
« Reply #5 on: January 19, 2018, 03:37:24 PM »
We dont do allowances and agree chores are chores. Grades, attitude etc..is more our basis to give them money. Anything they get or earn outside of that they get to keep 50%

I don't see allowance as being incompatible with chores are chores. I enforce things like "we can have dessert when the table is cleared and wiped and the floor is swept." I try to do as little extrinsic motivating as possible!

My kids live with me half the time, and they get their age in allowance every other week. One dollar must be for "give" and at least one must be for "save" and the rest can go into their wallets for spending on little things if they want, or into save if they prefer.

My almost-seven-year-old has saved up about $50-$60 of his allowance! Now that he has a Toys R Us gift card from Christmas and with an occasional ten-dollar bill that he has gotten as a present, he is just about ready to buy the "hundred dollar Lego set" he has been saving up for.

They mostly spend their spending money on getting ice cream at Costco. I encourage them to pay themselves, using actual cash, and to place their own order. If I need to buy them undies during the year (Santa always brings nice ones), then Mommy will pay for the cheapest kind and if they want a kind that costs more, they can chip in! That kind of thing.

galliver

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Re: Allowance for Kids
« Reply #6 on: January 19, 2018, 03:59:37 PM »
My parents started when we started middle school, and our "allowance" was synonymous with our lunch money. We could bring lunch from home for free, so if we were responsible with that we could keep all or most of our money (there were occasional "circumstances beyond our control" and those lunches were "on us," too, hence "most" not always "all").

Looking back I really like the idea of making a kid responsible for an actual age-appropriate need with their allowance. Hopefully I'll have enough means and flexibility when the time comes to have it grow with the kid...first it's replacement/supplementary school supplies, then lunch, then clothes...

I'm torn on the idea of telling kids how to use their money (re: spend/save/invest/share systems). We didn't get lots of birthday/holiday money (not common in our culture) and the allowance we got was low, but anything we *did* get we had complete ownership of and that was empowering. It seems to undermine the idea of ownership if you tell them what to do with it (especially gifts...allowance is a teaching tool after all so I'm more ok with that). I've also always liked the idea of giving a kid the option to do extra work/chores/projects for money until they can get "real jobs". If some kind of mowing lawns/babysitting type employment is possible in one's neighborhood/community that is of course excellent also, but I don't think that's always feasible nowadays.

Jenny Wren

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Re: Allowance for Kids
« Reply #7 on: January 19, 2018, 06:55:04 PM »
We  operate off the premise that one has to do something to earn money -- it isn't simply given just because. In our home, chores are a requirement for all family members. The kids earn their allowance by doing the chores when expected and without any bitching within a parent's ear shot. In other words, their job is to be pleasant about it.

We did divided payments when they were younger. Now that they are older, I simply transfer their monthly allowance over to their bank accounts on the first. They have ultimate freedom about whether to save or spend from there. Both are savers by nature, so it hasn't been an issue.

Imma

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Re: Allowance for Kids
« Reply #8 on: January 20, 2018, 07:59:37 AM »
When I grew up, allowances weren't linked to chores. Chores weren't optional. As I was frugal as a kid too, I'm sure I'd have opted out of chores and let my sis have the money while I was reading library books. I received small allowance, which would be equal to about €1,25/week (this was before € ) . I think it's a good idea to start with a very small allowance at a young age, to learn kids about handling money. I wouldn't want to reward doing chores or homework with money, because doing those is a given. It's not something that needs a reward. Young kids can't make their own money (unless you reward chores with money) so it's up to the parent to provide a small allowance so they learn how to deal with it.

From my allowance, I had to pay for birthday gifts for friends and family and any unnecessary thing I wanted to buy. I didn't really want a lot of things. I borrowed books from the library and only bought copies of my favourite books for myself. I saved up the entire Little House series, which were about €15/each. I would save birthday money as well and I collected stuff to sell at flea markets. While I was pretty good at this, obviously it was a lot of effort for my parents who would try to disencourage it. My parents invested for me as well, and they would take my saved up money for that. This was a good idea, but I wish they would have explained it properly. All I knew is once I had €50 saved up, my savings were suddenly taken away "to the bank" but I had no idea what was happening to it. At the time, sometimes I would spend money just to make sure I didn't reach €50. It ended up being around 7k when I turned 18 and I used it for my university tuition so it was a pleasant surprise. My parents contributed €100 for each birthday, otherwise it's all savings from birthdays/pocket money and the market.

La Bibliotecaria Feroz

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Re: Allowance for Kids
« Reply #9 on: January 20, 2018, 09:08:42 AM »
We  operate off the premise that one has to do something to earn money -- it isn't simply given just because. In our home, chores are a requirement for all family members. The kids earn their allowance by doing the chores when expected and without any bitching within a parent's ear shot. In other words, their job is to be pleasant about it.

We did divided payments when they were younger. Now that they are older, I simply transfer their monthly allowance over to their bank accounts on the first. They have ultimate freedom about whether to save or spend from there. Both are savers by nature, so it hasn't been an issue.

I think the argument on the other side is that if you are paying kids to do chores, they'll expect to be paid for every little thing.

That said, my parents paid us for chores and we all turned out OK about money. (Well, except my brother, but he has other issues...)

ginjaninja

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Re: Allowance for Kids
« Reply #10 on: January 22, 2018, 11:42:26 AM »
Boarder42- I like the idea of giving them an interest rate to go with all of the money that they save!  I know a lot of people who use the envelope system as adults too and it seems to work really well for them.

acroy- Tracking it in excel could be fun for them too!  I see what you're saying about it not really having an impact until they are a little bit older though.

mxt0133-  That sounds pretty similar to what we did!  The account that you open will probably depend on what you want to use it for.  If you want it to pay for their college then the 529 could be a really good option.  My parents just put the money for me in a normal after tax mutual fund so that I could use it for a house, rothIRA, school, etc. depending on what I wanted to invest in when I got the money at 21.  The requirement was that the "invest" portion for allowance remains as an investment for my future. 

soccerluvof4- I am noticing a trend with the 50%.  It seems easy to understand too!

frugalparagon- that's an interesting idea that they can pay for the "upgrade".  That is a cool way of getting out of the brand name mindset.  Awesome job to your son for saving for the leggo set, I bet it will be really rewarding after saving up for so long!

galliver-  I would disagree that telling them what to do with their money isn't empowering.  I can see where you are coming from with gifts, but it was really empowering to have a better understanding of how money works.  I was a natural saver and my sister was a natural spender, we both were able to use the system with a lot of flexibility.  We also would be able to earn extra money with the projects around the house that weren't normal chores (mowing lawn, cutting tree branches, etc.)

Lichen- I like the idea of the no complaining about doing chores!  It helps when they tend to be savers!

Imma- I had a friend who's mom would just take the money out when she thought it was too much similar to you.  I think it is important to be engaged with the process, taking the money out is okay as long as the communication is there and you can understand what is happening to it!

galliver

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Re: Allowance for Kids
« Reply #11 on: January 22, 2018, 05:09:36 PM »
galliver-  I would disagree that telling them what to do with their money isn't empowering.  I can see where you are coming from with gifts, but it was really empowering to have a better understanding of how money works.  I was a natural saver and my sister was a natural spender, we both were able to use the system with a lot of flexibility.  We also would be able to earn extra money with the projects around the house that weren't normal chores (mowing lawn, cutting tree branches, etc.)

To each their own I suppose. Like I said, I am torn...I think I would reconcile my torn-ness by explaining the options and my recommendations, and then letting the kids make their choices about how much to spend/save/etc...but then keeping them to it. That way it's their decision and they still have ownership, but there's structure to it.

I would contest that being told (ordered, forced) what to do with your money *isn't* the same thing as "learning how it works". First, hardly ever in the adult world does anyone give you money and tell you what to do with it (exception: countries/organizations with required retirement contributions, and perhaps taxes?). Second, there are a lot of elements to how money works: earning it, taxes, saving it, budgeting on necessities, evaluating cost/benefit on "wants".  Even taking out debt (hey, if they mess up with $20 when *you're* their lender, you can make it a lesson rather than a disaster with $100k in student loans...)

We humans learn our lessons best when we make mistakes; therefore the goal with allowance is to let the kid make mistakes and struggle, then push them toward a better solution when they're open to listening. The authoritarian approach *might* train them in good habits, but it might also backfire as they rebel against rules they followed but never really internalized, once you no longer have control over them and their money.

mxt0133

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Re: Allowance for Kids
« Reply #12 on: January 27, 2018, 01:26:02 AM »
mxt0133-  That sounds pretty similar to what we did!  The account that you open will probably depend on what you want to use it for.  If you want it to pay for their college then the 529 could be a really good option.  My parents just put the money for me in a normal after tax mutual fund so that I could use it for a house, rothIRA, school, etc. depending on what I wanted to invest in when I got the money at 21.  The requirement was that the "invest" portion for allowance remains as an investment for my future. 

@ginjaninja - After doing some research on UTMA vs 529k, for now i'll start with a UTMA.  I can transfer appreciated stock to the account and harvest gains and dividends as long as it is under $2100 a year.  I will also start implementing some type of match the more they decided to save the more their money will grow.  I know it will count against their financial aid if they decide to go to college, but at that point I will transfer the UMTA into a custodial 529 account which is treated more favorably from a FAFSA perspective.

"A custodial UTMA account is reported as the student’s asset on the FAFSA. A 529 college savings plan for a dependent student beneficiary is reported as the parents’ asset on the FAFSA, even if the account is owned by the student (i.e., a custodial 529 college savings plan). This favorable treatment of 529 college savings plans became effective with the 2009-10 academic year. (Congress enacted the change as part of the College Cost Reduction and Access Act of 2007.) Thus moving the money from a custodial UTMA account to a custodial 529 college savings plan account will reduce the EFC by at least 14.36% (20% – 5.64%) of the value of the account."

*https://www.fastweb.com/financial-aid/articles/should-parents-transfer-college-savings-from-an-utma-account-to-a-529-plan

mustachepungoeshere

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Re: Allowance for Kids
« Reply #13 on: January 27, 2018, 02:00:07 AM »
My almost-seven-year-old has saved up about $50-$60 of his allowance! Now that he has a Toys R Us gift card from Christmas and with an occasional ten-dollar bill that he has gotten as a present, he is just about ready to buy the "hundred dollar Lego set" he has been saving up for.

I don't have kids but this reminded me of something a family member does with her kids.

When they're given gift cards for birthdays, Christmas, etc, she 'buys' them from the kids - puts the equivalent money in their bank accounts then uses the gift cards.

There's no pressure for the kids to spend the gift card by the expiry date, no chance it will be lost or forgotten, and it's easier for the kids to save up for something big.

 

Wow, a phone plan for fifteen bucks!