Alternative to Allowances

[2527]

Here's something my wife and I do with our two kids, 13 and 10, with good results.  Instead of giving them an allowance, we gave them a bank account with us that earns them 10% per month.  They get some money for grades and holiday gifts, and some for chores sometimes.  They are free to spend it or invest it in their bank. 

First, they built up their balances to around $100, and then they spent it all down to about $5, and quickly learned that 10% of $5 is basically worthless.  They've built their balances up to around $150 to $250, and they keep them there.

Sometimes they buy things, but they choose well and rarely buy useless stuff based on impulse.  They have become very sensible.  They've learned to make their money work for them.

By the way, we recently told them the interest rate on their balances above $250 is 5%.

It's worked really well. 

[oldtoyota]

Very cool idea!

[gooki]

Thanks for an interesting idea.

[yolfer]

Great idea! We do something similar, that I read in Bank of Dad (which is a sexist book title, but an interesting book). The author takes it one step further and set up a fake stock market for his kids to "invest" in.

[TLV]

I've been considering structuring allowance as annuities - starting them off at, say, $1 per week, and if they want that raised they pay me a lump sum (perhaps whatever their current allowance rate is) for an increase of .10/week, with some kind of cap to keep them from bankrupting me. This has the advantage of a smooth decrease in the amount I subsidize it - instead of sharp drop-offs like halving the interest rate above a certain amount.

I like this savings account approach too, though, especially that it gives them the opportunity to learn why you shouldn't spend principal. It seems like it would be easier for a child to understand, too. (My daughter isn't even 2 yet, so I don't have any experience actually implementing anything...)

[gdborton]

I love this idea, how did they handle the news about the 5%?  Are they mature enough to understand that you won't be able to deliver 5% a month indefinitely also?

[2527]

They were OK about the reduction to 5% above $250...they know what real interest rates are.  But I can tell they feel less incentive to go above the $250 level.

[Lans Holman]

This sounds fantastic and I am going to have to remember it for when my kids are big enough.  My only quibble is with the idea of paying for grades.  All kids are different and I'm not saying this to be judgmental.  I would just say be careful not to give them the idea that that's the only reason they should be striving for academic success.  At some point their own intrinsic motivation needs to develop, and you run the risk of stunting that if you go too far down the path of paying them for grades.

[2527]

Lans, I agree with you.  And I don't think a little cash at report card time really changes their level of effort throughout the year.  I've never heard them say, "I want some money at a report card time, so I'll study."  It's more like a symbol that grades matter or a tip to a waiter or waitress. 

[gdborton]

I read this article this morning, and it is super relevant to the last few posts.  A bit long, but like most posts on the site, a really good read.

http://youarenotsosmart.com/2011/12/14/the-overjustification-effect/

[Lans Holman]

Lans, I agree with you.  And I don't think a little cash at report card time really changes their level of effort throughout the year.  I've never heard them say, "I want some money at a report card time, so I'll study."  It's more like a symbol that grades matter or a tip to a waiter or waitress.

Excellent.  I was just thinking of what we're dealing with with our daughter.  We played the "you have to eat your dinner before you can have dessert" a few too many times, and now she's constantly trying to bargain about how much dinner she has to eat before she can have dessert, rather than just eating until she's not hungry anymore.  Pretty sure it's a phase she'll grow out of but it's an annoying reminder of the limits of incentives. 

[MrsPete]

I did/am doing something similar with my kids, and it seems to have worked/be working well.  My college daughter is very frugal, and I'm pleased with the financial decisions she's making.

As for paying for grades, we don't give cash.  We do go out to dinner (kids' choice) on the day report cards come home . . . Only if everyone has all As and Bs, which is always.  Mine are all old enough to drive, so for straight As I give a special perk:  I take their shared car and fill it with gas. 

My other big rule:  I told them about scholarships when they started high school, and I told them that whatever we didn't spend on college, we would spend on a car when they were college juniors (chose that point because that's when they're more likely to be doing internships, etc. And because a car purchased at that point could be counted upon to last well into a first job).  I owe my oldest a pretty nice car this summer,  and I sincerely hope to owe the same to my youngest in a few years! 

[CommonCents]

I like this idea, although I too always worry about paying grades for money.  When I was a kid, I took AP classes, classes with a community college professor at the school for free (they taught poly sci & calculus in the high school classroom) and classes at the local, big state university for college credit.  A pay for grades would also possibly discourage taking harder classes like this.

[2527]

It's not really paying for grades.  My kids are really smart and get all As or nearly all As anyhow. 

[Norrie]

Super interesting idea!

Our kids get a weekly allowance (their age in dollars) in one lump sum at the end of the month. Before they get paid, we talk about their contribution to the family and house. Did they do their stuff (homework, cleaning room, keeping bathroom tidy, helping with dinner or cleaning, etc.) without being reminding or complaints? Awesome. Here's your full salary for the month. Did I have to hound them about hanging up their mother freaking towels after every shower? Bummer. How much do you think that we should knock off?

Usually they both just lose a couple of bucks a month, and I think that they're way harder on themselves than they need to be.

Then we take them to the bank, they fill out the deposit slips themselves (I really need to save one of my son's, written in big, awkward, left-handed kid writing), and are always so stoked by the balance.
Their accounts are linked to mine, and so if they want to buy something, I can use my debit card and move the money over easily.

I really like your idea though. I'm always looking for new ways to teach our kids about money and how to handle it.

[RootofGood]

We do the traditional allowance with a twist.  Each kid (age 7 and 8) gets $2.50 or $2.75 (older one gets more).  When they are bad during the week, they lose a quarter.  When either kid only has $1.00 remaining, they both lose tv and computer privileges.  This encourages teamwork and reduces tattle telling. 

When they ever so rarely "lose all their quarters", they are on probation and the next bad action means grounding for 7 days. 

We settle up on Sunday evenings (just did it a minute ago), so there chances to be bad without a major consequence reboots weekly. 

They can also earn additional allowance for helping out with extra chores or just being awesome in general. 

[Joshin]

I like the bank/interest idea. Our twist is the kids get weekly paychecks. They have "time cards" with daily "jobs" that they have to get signed off each day. They can earn overtime by doing something extra without being asked (like cleaning out the car). Each job is worth 50 cents for the oldest and 25 cents for the youngest. Don't do a job, you don't get paid for it.

On payday, we sit with each one and help them divide out their money in their budgets. For example, older has five budget categories: clothes, gifts & entertainment, scout fees, cell phone and savings. He's worked out his budget for the year in those categories so he knows how to divide the money so each category has enough in it. He also knows how to use a compounding interest calculator so he can estimate how much his savings is growing at the credit union. Savings is for long term items -- car, college, or a house (he hasn't decided yet) -- not short term stuff, and he is encouraged to save 35 - 50 % of his weekly income. In practice he tends to save 60 to 70%, but he rarely tries for overtime. He keeps a very detailed ledger of his own devising for each category. For shortterm savings (such as a new tent), he'll lower his spending in other categories and draw out less fun money from his weekly pay.

Youngest isn't that excited about savings yet. He has three budget categories: astronomy fees (only $15 a year), gifts and entertainment, and savings. He's required to put at least 35 % in savings and his longterm goal is space camp in four years. He has a simple ledger we help him with. He does overtime more than his brother, though, and is constantly looking for ways to pad his paycheck. 

Judging my kids right now, my oldest is gonna be a saver that prefers to work less and live with less, while my youngest is going to be a workaholic who would rather earn more and spend more.

[NumberJohnny5]

Our two kids get an allowance roughly equal to their age. Our 7yr old is getting $8/wk, will get the same when he's eight and likely when he's nine, it'll jump up again by age ten.

It's divided up 40% spend, 30% save, 20% invest, and 10% donate. We also recently started giving him about $5/mo to buy clothes with.

Many are against allowances on principle, and I get that. However, I notice most of these people still buy stuff for their kids, which (to me) defeats the purpose. I want to put our kids in control of their spending, and hopefully let them learn how to manage their money by making decisions. I'd much rather they make a mistake when the stakes aren't much higher than $20 or so, instead of $20k.

An idea we had, which we have poorly implemented, is to charge him for doing his chores. I.e. if we have to clean his room for him, we charge $2. This would mimic real life; no one pays me to clean the house, but if I didn't, I'd have to pay someone to do it for me.

[Nords]

Many are against allowances on principle, and I get that.

Here's what worked in Hale Nords, courtesy of David Owen's "First National Bank of Dad" (as mentioned by another poster):
- An allowance is designed to teach kids how to handle money-- simple as that.  You can light it on fire if they want to (entertainment) or use it to achieve longer-term goals.  We'll show you how to do it, and we'll try to set a good example with teachable moments, but it's your money and your decision.

- "Grades" are an indication of how you're doing at your job of being in school.  Mom and Dad get graded all the time at work, and kids get graded at school.  If you get good grades then you get more choices about what you want to do at school and what you want to do with your life.  If you get bad grades then you get more help and fewer choices.  We'll show you all of the examples that we encounter and follow up with some comforting advice like "Kids, stay in school!"

- "Chores" are what you do as a member of the family.  You don't get paid for chores, and allowance is not tied to chores.  If you don't do your chores then you're in the quiet chair (or grounded, or no bandwidth) but you still get your allowance.  You also have a choice whether or not you clean your bathroom or your room or do your laundry, because we're not going to nag you about that.  You'll learn pretty quickly that you want to do those chores too. 

- "Jobs" are what you do in pursuit of more money than the allowance.  Jobs are totally optional but there's always a car to be washed or a lawn to be mowed.  We'll pay a higher hourly rate for skilled jobs like oil changes or sprinkler repairs or toilet wax seals, so it pays to learn skills. 

Our daughter turns 21 this month, and she's the financial advice go-to person at her college.  She's seen her parents be financially independent for over half of her life, and she knows exactly why she wants to pursue that goal.  I can name three of her friends within two blocks on our street who have failed to launch and will be living with Mom & Dad (or whoever will put up with them) for many years.  Every one of them lacked the system that we used, and their parents kept them more or less in financial ignorance.

[the lorax]

That's a really helpful guide- thanks for posting!
Any tips on how old kids should be before starting them on allowances/pocket money?

[RootofGood]

Our daughter turns 21 this month, and she's the financial advice go-to person at her college.  She's seen her parents be financially independent for over half of her life, and she knows exactly why she wants to pursue that goal.  I can name three of her friends within two blocks on our street who have failed to launch and will be living with Mom & Dad (or whoever will put up with them) for many years.  Every one of them lacked the system that we used, and their parents kept them more or less in financial ignorance.

Nords, as odd as this sounds, I still remember a similar post of yours from 6-7 years ago at the ER forums where you relayed similar advice regarding allowance for your daughter. 

Our kids are extremely savvy about money already (given that they are 7 and 8).  Last night's dinner table discussion included a question from the 8 year old: "Did the stock market go up today?" followed by "What's a stock market?".  We then went on to summarize (in 8 year old terms) what stocks are and what they mean.  I concluded the conversation with "We buy shares instead of crap.  It doesn't matter if Daddy works, because the stocks pay us whether we work or not."  Fun times at chez RootofGood. 

I can't wait till they are old enough to get a clothing allowance and be responsible for provisioning themselves for six months or a year on their allotment.  :)

[SisterX]

General question from a soon-to-be parent: what age did you start giving your kids an allowance?  What seems to be a good age for them to start understanding money?  For those of you with older children, would you have changed anything about when you started giving an allowance, how much, or how it was implemented?

[Mr.Macinstache]

General question from a soon-to-be parent: what age did you start giving your kids an allowance?  What seems to be a good age for them to start understanding money?  For those of you with older children, would you have changed anything about when you started giving an allowance, how much, or how it was implemented?

We dont give an allowance. They do earn money like the real world. My son took his slinky to school and sold it for a $1 yesterday. LOL

They are expected to do chores as part of living in the household and contributing as a family. My youngest asked why Mom doesnt take her to school... I said its on my way to work, we save gas that way. She said, Oh, so we can go to Florida again next year? She gets it...

I have bank accounts for the kids and pay them when I feel like it. They are free to earn money too, and spend it as they like, but after seeing the rewards of saving, they have become savers instead of spenders.

[NumberJohnny5]

General question from a soon-to-be parent: what age did you start giving your kids an allowance?  What seems to be a good age for them to start understanding money?  For those of you with older children, would you have changed anything about when you started giving an allowance, how much, or how it was implemented?

I like starting before they're ready. For multiple reasons, #1, if you wait until they're ready...doesn't that kinda miss the point? and #2, sometimes I think they're not quite ready, but turns out they were...and I wonder how long I've been holding them back.

We started our kids with an allowance when they were 4. At that age, it took a while for them to understand the concept of "yes you have enough money" or "no you don't have enough money." Eventually it progresses to "if you really want it, you can save extra...or just don't buy anything else with your save money until you buy this...etc." Our oldest had no problem understanding what his donate money was being used for, shortly before he turned six. Now he's seven and understands a lot of the concepts, and is struggling (but so far succeeding) in saving his money to spend on an upcoming trip. We now give him a clothing allowance, so far he's bought two pairs of socks, and I picked a pair of shoes for him (showed it to him, asked if he wanted them, if not then I'd just re-donate them and not charge him for the shoes...he decided to keep them). Won't be too long until he'll get to do his back-to-school shopping.

[Nords]

That's a really helpful guide- thanks for posting!
Any tips on how old kids should be before starting them on allowances/pocket money?

General question from a soon-to-be parent: what age did you start giving your kids an allowance?  What seems to be a good age for them to start understanding money?  For those of you with older children, would you have changed anything about when you started giving an allowance, how much, or how it was implemented?

You guys really need to go read "First National Bank of Dad" by David Owen, but I'll share what he said:  "They're ready for an allowance when money stops being a food source."

I didn't do a good job of tracking it in Quicken, but I think we were paying her a buck per week when she was 3-4 years old.  I remember playing games with counting and the number of quarters in a dollar and so forth, and back then she couldn't believe that a dollar would be worth more than a quarter.  Which, when you compare the two from a preschooler's perspective, is logical.  She was allowed to buy "one special thing" with her allowance when we went out shopping (food or toys), and she knew she could spend it as it came in or save it until it got bigger.  She was a big fan of the book "If You Made A Million".

For her eighth birthday we started the "Bank of Kid 401(k)".  The idea was that she got $3/week allowance to spend however she wanted, and another $5/week went to her 401(k).  It had Mom & Dad matching and she couldn't touch the 401(k) until she turned 16 years old.  ("Another whole lifetime!!")  When she turned 16, though, she'd have $5000 to buy herself a car.  I was astounded at how that stopped all the car gimmes... she took great satisfaction in knowing that she had a 401(k) and she had the car thing all figured out. 

For her ninth birthday (the credit union's minimum age) she got a checking account.  The credit union also gave her an ATM card, which she promptly lost.  She had to wait another year (until it expired and was replaced) or pay the $25 lost-card fee.  It killed her to wait that year, but she did it.

And so it went over the next few years.  After a few months of checkbook-balancing tears (sloppy handwriting) she discovered Quicken and never looked back.  We started transferring her allowance to her checking account.  Eventually we gave her the allowance monthly.  In her teens we started a "clothing & toiletries" allowance (in addition to her regular allowance), and the joke was that she could either look really good or smell really good.  That eventually went to quarterly and then semi-annually. 

We talked a lot about the stock market (she noticed that it was a big topic between Grandpa and me) but she's not a hard-wired investor.  She played around with a few stocks but when she discovered CDs she decided those were much better.  Today she's in passive index exchange-traded funds.

To nobody's surprise, on her 14th birthday she filled out a work permit application and got a part-time job at the local Kumon franchise.  Her first purchase was a pay-as-you-go cell phone.  We also got her a credit card (on my name/record) so that she could learn how to use it.  That worked out great because the Disney Channel was always showing dramas about kids who screwed up their credit cards.  But she still occasionally blew her budget on texting and phone calls.

She blindsided us for her 16th in 2008.  She'd been driving our 1994 Ford Taurus wagon and she knew it was on its last legs.  She asked us to invest with her in a Prius.  She'd put in her $5000, drive it until she went to college, and then cash out her shares to put into CDs until she was ready to buy her own car.  During her share ownership, she'd take care of the car and its maintenance.  She'd lose money if there were dings or accidents.

We were so shocked that we agreed.  We bought a used 2006 model.  I was a very spoiled Prius owner for two years-- our live-in mechanic did all the oil changes, car washes, vacuums, and other maintenance.  She ran all of our errands and even did all the household grocery shopping (for reimbursement).  But then she graduated from high school and escaped to a Mainland college.

18 months ago she pitched us again, but this time we were ready.  She wanted to borrow $5000 for a used car and pay it back out of her NROTC stipend at $100/month, pretty much the same deal I'd had with my grandparents when I was her age.  (So apparently kids do listen to your stories.)  She shopped hard for a '99 Honda CR-V with 163K miles at $4200.  I bit my tongue many times during that week but her beater hauler has held up like a champ.  She still has that $5000 in CDs for her commissioning and her ensign's apartment... and perhaps someday for a newer vehicle. 

At the same time she moved off-campus to an apartment with two roommates.  Instead of paying room & board to Rice University, we pay her the same amount ($8100) at the beginning of the semester.  She has to make it last for six months, but she gets to keep what she doesn't spend.  I've never had a phone call.  Not only that, but she sublets during vacations & summers and has been socking it away in her savings account.  They even charge their dorm friends $25/month for storage when they have to vacate their rooms during summer.  Of course she bikes to campus because on-campus parking is way too expensive.

You can see that this was 18 years of effort in a household that cares very much about money and spent a lot of time thinking about how to use it.  She was always hearing us talk about it, and we were always trying to stay a step or two ahead of her.  We didn't care whether she piled up a lot of savings for college (although that happened), but rather we wanted her to know how to handle ever-bigger piles of money in ever-more-grownup ways.

You know what tripped her up?  The rich friends she met during freshman year.  Instead of shopping for jeans at Goodwill or even Target, they took her to Neiman-Marcus.  She was afraid to speak up for herself, but after she flattened her checking account she figured it out.  Now she's showing her rich friends how to score at Goodwill.

Our daughter turns 21 this month, and she's the financial advice go-to person at her college.  She's seen her parents be financially independent for over half of her life, and she knows exactly why she wants to pursue that goal.  I can name three of her friends within two blocks on our street who have failed to launch and will be living with Mom & Dad (or whoever will put up with them) for many years.  Every one of them lacked the system that we used, and their parents kept them more or less in financial ignorance.

Nords, as odd as this sounds, I still remember a similar post of yours from 6-7 years ago at the ER forums where you relayed similar advice regarding allowance for your daughter. 

Our kids are extremely savvy about money already (given that they are 7 and 8).  Last night's dinner table discussion included a question from the 8 year old: "Did the stock market go up today?" followed by "What's a stock market?".  We then went on to summarize (in 8 year old terms) what stocks are and what they mean.  I concluded the conversation with "We buy shares instead of crap.  It doesn't matter if Daddy works, because the stocks pay us whether we work or not."  Fun times at chez RootofGood. 

I can't wait till they are old enough to get a clothing allowance and be responsible for provisioning themselves for six months or a year on their allotment.  :)

Thanks, and it's a lot of fun to watch them put it to work! 

If you're raising a boy, though, I'd be careful with that "look good or smell good" admonition.  Neither one has much impact until they discover hot chicks.

[kolorado]

Wow, this thread is intense! We all have some very complex structures and associations between money and responsibilities and privileges!
 I grew up in a house that punished by taking away allowance. I therefore was an angel all the time to get my money. My siblings struggled with these rules more than I did. Every new "incentive program" my parents dreamed up to inspire better behavior in these siblings was not successful to them. It was to me though since I cleaned up on those extra chores and incentives. The point is, they were using incentives to make my siblings more like me with my natural money sensibilities which only served to reward me more for being who I already was.
I don't want my kids to want money for being good. First of all, it fosters greed and manipulation, and second it isn't a realistic expectation for adult life. It also is very unlikely that any rule applied over several children will teach them the same thing since different personalities are involved.
I give my children their age in allowance dollars every other week. This is put into their financial binders in one of 4 zipped pencil holders labeled "spend", "save", "invest" and "help others". Spend is for what they want immediately like gum or a small toy. Save is for a larger item that costs more. Invest is for a "bank" account. Help others is what it sounds like. My 10 and 8 year olds understand the first two concepts very well after only 2 months of implementation but the other two are a bit more elusive to them since we've talked about them but they haven't chosen to act on them yet. I will probably semi-force them to act on both by November by having them invest a week's allowance with us at 1% interest a month(you all give out some high rates!)and taking a week's allowance to spend at the grocery on things they'd like and then dropping them in the Food Bank bins out front.
They do not get an allowance on school vacations. In those times off, I will put out a chore list with money amounts listed for labor. Since this is the first year I'm implementing the system(and I spent years planning it and waiting for my kids to be ready to handle the concepts), we haven't had a vacation yet to try the chore list and learn about wages for labor.
I never punish the kids for misbehavior by taking their money. We always remove privileges as punishment.
We don't give money for good grades. One reason for that is that I believe grades are nearly worthless to becoming the kind of adults I believe are of most use to society and to God. It also leans heavily on rewarding those who are already gifted in traditional learning paths and discourages the others who aren't. As the only straight A student in my family of 5, I have experience in this area. I'm not any smarter than my siblings. I just worked the system better. Equating "smart" with "A's" is a very limited view of a person's intelligence or ability.
What I do to encourage a love of learning is to reward a good attitude and participation day of schooling(we homeschool)with a star on an index card. I have a stack of cards labeled with different rewards and the numbered star requirements to earn the reward. These are things like a trip to Sonic or the toy store, or a candy bar all to themselves, or another restaurant or place they'd like to go. They spend their own money on these outings. My son is currently filling a card for the toy store(and we never go otherwise since I do the shopping alone)and my daughter is filling out a card for the pet store where she will just go to look and pet. If they don't have a good day they don't get a star. If they are deliberately and persistently disobedient, defiant or otherwise rapscallions, I threaten to remove a star they've earned. I haven't had to do that yet. But I allow a fair amount of rapscallion behavior because of their learning delays and ADHD.

[SisterX]

That's a really helpful guide- thanks for posting!
Any tips on how old kids should be before starting them on allowances/pocket money?

General question from a soon-to-be parent: what age did you start giving your kids an allowance?  What seems to be a good age for them to start understanding money?  For those of you with older children, would you have changed anything about when you started giving an allowance, how much, or how it was implemented?

You guys really need to go read "First National Bank of Dad" by David Owen, but I'll share what he said:  "They're ready for an allowance when money stops being a food source."

I will read that book, but I was asking opinions on this forum because I wanted to know what YOU all thought and did, not what some other guy thought.

I take it you're not in the "regret doing X" camp?  :)

And I'm curious partly because there seem to be two competing philosophies behind allowance: some people pay their kids for doing chores as an incentive and so that kids learn about job-like responsibilities.  Others use allowance solely as an experience to learn about money.  I don't think either is better or worse than the other, they both have merits.  I'm using this as a bit of a starting place to talk with my husband about what we'll do when the time comes.  (Years from now, since our daughter hasn't even been born yet.)

Since allowance, like so many other parenting decisions, depends a lot upon family dynamics I realize that what works for one family won't necessarily work for another.  In the end, we'll come up with something that suits us and our family/financial position, but it's fascinating to hear what other people have done and what's worked/hasn't worked for them.

Also, I don't really have a good model from my own family since my parents were terrible about allowances.  I think I only got an allowance when I remembered to ask for it, and that only happened when I wanted something.

[Joshin]

We started allowance fairly young but it was dependent on the child. My eldest began asking about money around four, so we implemented a very simple system of earning quarters for doing extra jobs on a list we kept on the fridge. Some weeks he would be on an earning frenzy, others not so much. We matched his quarter with an extra one for the bank, which we took down to deposit together about once a month. Youngest began questioning around three, so we started a bit earlier with him.

My parents did not tie allowance to work, which did have a slight negative effect on me at first. I figured it out quickly once I was on my own, but there was a learning curve. It took my sister even longer to figure it out and she's still paying the consequences. I think no-work allowances are great for some families and personalities, but it is a bad match for me and especially my youngest son's personalities. If I just handed him money he would logically deduce that money was a free resource that others should hand to him just because he exists. If we tried to discuss it with him, he would come up with his own counter-arguments as to why he is right and why we should give him more. My older son could probably understand the correlation on a deep enough level, but he's doing well on our paycheck system and my house is always clean, so we won't change it!

Not all chores are tied to money, they have specific chores to earn a paycheck. There is no punishment beyond no pay if they don't complete these. They also have chores they do because they are part of this family. They can lose privileges for not completing these.

[MNBen]

For questions about evaluating when they are ready, I would suggest this one-time test that doesn't commit you to allowances for the year:

Give them a gift card for a gift and see how they handle it.

For my niece, who I would normally buy her something off a gift list or something her parents told me she really needed, I decided it was time to give her the choice and I gave her a gift card and asked her parents to tell me how it went. 

They reported that her first trip to the store, she took so long to decide what to get, she ended up giving up and going home to think over the decision she faced.   A few days later, when she had finally decided, they went to pick it out.

I would say by her "maturity" with the gift card, she was definitely ready.  She knew the balance on the card, could read prices at the store, and for the first time in her life the tables were turned on her.  Instead of making a gift list, she could now have anything she wanted...as long as it was under the balance and parents approved.

With all those choices, I can only assume she was a bit overwhelmed and didn't want to pick out the wrong thing!

[RootofGood]

Thanks, and it's a lot of fun to watch them put it to work! 

If you're raising a boy, though, I'd be careful with that "look good or smell good" admonition.  Neither one has much impact until they discover hot chicks.

Nords, you better watch it or your daughter may become an investment banker or next Fed Chair(wo)man!

As for the boy, we may have to institute some minimum cleanliness standards at some point.  And the hot chicks will probably enter his life at an early age - it'll be hard to avoid when his sisters that are 6-7 years older start bringing their high school friends over. 

On a whim, I took the girls to a thrift shop a few months back (when the Thrift Shop song was on endless loop on the Top 40 stations), and they were amazed.  Shirts and skirts for a buck?  That way cheaper than Walmart!!  I think they might be thrift shop shoppers for life now. 

[Nords]

Nords, you better watch it or your daughter may become an investment banker or next Fed Chair(wo)man!

Gosh, I hope so.  I'm ready to exit the business of advising my family on their finances.  I've already suckered persuaded my spouse to take over ours on my 60th birthday.

We've definitely been able to verify that our daughter is not hard-wired like Warren Buffett.  She prefers autopilot investing in cheap passive equity index funds.  Her circle of competence is to contact me for advice and then make her own decisions, but they're the kind of decisions that need to be able to handle themselves for 90-day submerged patrols or eight-month deployments.

[ender]

Nords your style is close to exactly what I intend should I have kids someday.

In my opinion, a key is the "we'll give you $X for this, you get to choose what you buy" strategy. I have literally no clue what my parents spent on me growing up, because that was completely cryptic to me. I have no idea what my parents spent on groceries, because I never saw. Clothing? Music? Nada.

But had my parents given me "$XX for fun per month" I guarantee you I would have chosen differently and adopted my mindset towards money a lot earlier. You start seeing the direct consequences of choosing to buy X instead of Y because you are choosing which - not mom/dad.

If I have kids, I'm going to basically do exactly that - when they get older to start "wanting things" setup budgets of sorts of what I'm willing to pay for them, whether clothing or recreation or whatever, and then let them choose how they get spent. Want to go to the movies but your entertainment was spent on candy? Sorry...

Thanks for everyone who are being examples here.

[elaine amj]

I've been thinking a lot on this topic so when I saw this thread, it hit home for me.

For a while, I paid my kids for doing chores. Worked wonderfully with my son (who will do anything for very little money) but not so great for my daughter (who will only do it if she sees it to be beneficial - and she didn't see a need for more money). I liked it, but we faded it out when the kids started having too much money and having nowhere to spend it. (or spent it on all kinds of frivolous stuff that drove us nuts).

We hate waste. But my kids need goals to work towards. And frankly, at this stage - they have very very little they need to spend money on. I REALLY need ideas on what my kids can spend money on - that it won't drive me bananas to fund. I hate giving them money, for them to turn around on spend it on things I consider wasteful.

- clothing...I'd sooner not do this. At 11 and 12, they really don't care. I care a WHOLE lot more.
- entertainment...we really don't encourage a lot of expensive entertainment. My son adores arcades, but we only allow it once in a long while. We don't go to movies often.
- activities...hmmmm, this one would be heavily skewed towards my son who plays competitive soccer while my daughter does only free activities.
- trips...we go on a LOT of family trips and I've been toying with the idea of getting them to pay their share. The only thing holding me back is that WE make the decisions on where to go, and it feels unfair to me to make them pay for something they only have a small amount of input in. I do already make them pay for their own souvenirs and extras not in my budget (which resulted in $40 caricatures, $50 arcade trips, and $30 earrings).
- eating out...toying with getting them to pay for their share of meals, but same reservations as above.

I'm trying to find bigger items for them to save towards. But frankly, they are pretty blessed in material stuff and have few needs. I have an almost impossible time figuring out suggestions to family and friends for birthdays and Christmas already and for years we have focused on memberships and trips as gifts. I guess my son would like a newer iPhone (I consider his iPhone 3GS completely indulgent already though). We have laptops and electronics galore. My daughter could possibly use a Mac or an iPad or her own iPhone (she uses my iPhone 5 - which I keep at home anyway), but frankly - these are distant wants and it seems completely anti-Mustachian to manufacture wants just to have a way to spend money.

[RootofGood]

"If that is what you want to spend your allowance on, fine."

It is great for kids to learn this concept at a relatively early age instead of when they are 20 or 30.  Better to waste $10-20 (or even $100-200) on something stupid that won't last long than it is to never learn the concept, then waste $10,000-$20,000 (financed by credit cards) when they are adults. 

I just bite my tongue, or if anything offer helpful suggestions like "it might be cheaper at xyz store if you want to wait and check there" or "you know the last one of those you bought broke within 5 minutes and went in the trash". 

[Mr.Macinstache]

Yep, its good to let them fail, show them the toy they HAD to have will become boring in 2 days. They'll get it. If you don't, they'll make larger mistakes later in life.

This weekend I was doing yard work and give the kids .10 for every rock they found in the yard... They were digging for gold for a good hour. No free lunches in this house, they are paid to work though.

[RootofGood]

Yep, its good to let them fail, show them the toy they HAD to have will become boring in 2 days. They'll get it. If you don't, they'll make larger mistakes later in life.

This weekend I was doing yard work and give the kids .10 for every rock they found in the yard... They were digging for gold for a good hour. No free lunches in this house, they are paid to work though.

My kids were digging for rocks for free.  They even recruited their little 1 year old brother to help.  And the other kids that were visiting for a play date.  Unfortunately their digging resulted in a small poodle-sized hole in the ground.  I can't figure out where they put the dirt from the hole.   And I don't have any poodles. 

I had to shut down this strip mining operation as soon as they decided to make a mud slurry and invite the 1 year old in. 

Oh, and mission accomplished this weekend re: allowances and spending.  We went to Toys R Us to spend a $25 gift card one of the girls received for a birthday present.  My astute training paid off.  The older daughter was like a hawk on crappy value toys.  She was her little sister's shopping adviser.  "Don't buy that, it is way expensive and you can get it cheaper at Walmart or the Dollar Store." Or "That's just a few tiny pieces of plastic that will get lost and the rest of it is just plastic and cardboard packaging that we will throw away anyway." 

We walked out of the store with a $15 rubber band bracelet making kit, some valuable life lessons, and $10 left on the Toys R Us gift card for a later purchase.  Four days later and the girls are still playing with the bracelet making kit, none of it is lost or broken (as far as I know), and they are happy.  If they had bought some of their other initial picks (a $20 plastic One Direction watch or a $16 magical fairy barbie-ish doll), their purchase would have been broken and/or lost by now. 

They opted to not purchase the $16 chinese checkers game because they usually have these at walmart for $5-10 around Christmas time.  And they didn't have enough money on the TRU gift card anyway. 

[kodokan]

"If that is what you want to spend your allowance on, fine."

It is great for kids to learn this concept at a relatively early age instead of when they are 20 or 30.  Better to waste $10-20 (or even $100-200) on something stupid that won't last long than it is to never learn the concept, then waste $10,000-$20,000 (financed by credit cards) when they are adults. 

In our house, we have the 'Remember the Ben10 watch?' story. My son, around 6 or 7 at the time, REALLY wanted this plastic strap-on pretend wrist communicator thingie, just like the Ben10 cartoon character had. It was clearly mass-produced junkie rubbish, which I pointed out, but he was adamant. *shrug* his money, his choice. He saved all his money for about 6 weeks, I took him the shop, he bought it, ripped open the packaging, strapped it on, twiddled about with it a bit... I could see the disappointment setting in within minutes. And then the slightly sick feeling of 'oh... all my money's gone, for ever, and in exchange I've just got... this'. But yep, better to do that with a $30 toy than a $30,000 car or $300,000 house. He's never, ever forgotten that feeling.

I've just implemented a cash for grades system, new this school year. My 8th grader gets $5 for every A he brings home; if it's an A for an honors class, it's doubled to $10 (because A for Honors English or Accelerated Math is a little bit more impressive than an A for vaguely participating in PE). So his maximum for that is $50, if he gets all As - if he does, we double it to $100, but the other $50 goes into his Future Grown Up Life savings account. He doesn't have to work too hard for As anyway, but there've been a couple of times when he's chosen to do an extra credit piece to turn a high B into an A, so I wanted to recognise and encourage this.

(His monthly allowance is split 2/3 and 1/3 between spending and saving, to start him off with a reasonable mindset of 'save at least a third of what you earn' rather than that silly 10% notion. I haven't quite worked out the details in my mind yet, but there will be some element of end-of-year matching based on amount in the savings accounts, or not having made any withdrawals, etc.)

I'm not quite sure how grades work in high school (we're English so only know the systems based on where the kids are up to so far) but am planning to do something similar but with larger amounts of money, some for him to splurge but most for him to save. The idea is that he'll finish high school with a high 4 or low 5-figure sum to launch off to college, or to travel, etc. Knowing miserly him, he'll choose to go to community college and continue to hoard it - he's very into compound interest and the long term.

[Mr.Macinstache]

Yep, its good to let them fail, show them the toy they HAD to have will become boring in 2 days. They'll get it. If you don't, they'll make larger mistakes later in life.

This weekend I was doing yard work and give the kids .10 for every rock they found in the yard... They were digging for gold for a good hour. No free lunches in this house, they are paid to work though.

My kids were digging for rocks for free.  They even recruited their little 1 year old brother to help.  And the other kids that were visiting for a play date.  Unfortunately their digging resulted in a small poodle-sized hole in the ground.  I can't figure out where they put the dirt from the hole.   And I don't have any poodles. 

I had to shut down this strip mining operation as soon as they decided to make a mud slurry and invite the 1 year old in. 

Sounds like you got exactly what you paid for. LOL.

[RootofGood]

Sounds like you got exactly what you paid for. LOL.

Some of the best fun for kids is free.  Who knows, maybe they'll work in the mines some day (mining engineers make good money, right?). 

[RootofGood]

"If that is what you want to spend your allowance on, fine."

It is great for kids to learn this concept at a relatively early age instead of when they are 20 or 30.  Better to waste $10-20 (or even $100-200) on something stupid that won't last long than it is to never learn the concept, then waste $10,000-$20,000 (financed by credit cards) when they are adults. 

In our house, we have the 'Remember the Ben10 watch?' story. My son, around 6 or 7 at the time, REALLY wanted this plastic strap-on pretend wrist communicator thingie, just like the Ben10 cartoon character had. It was clearly mass-produced junkie rubbish, which I pointed out, but he was adamant. *shrug* his money, his choice. He saved all his money for about 6 weeks, I took him the shop, he bought it, ripped open the packaging, strapped it on, twiddled about with it a bit... I could see the disappointment setting in within minutes. And then the slightly sick feeling of 'oh... all my money's gone, for ever, and in exchange I've just got... this'. But yep, better to do that with a $30 toy than a $30,000 car or $300,000 house. He's never, ever forgotten that feeling.

Yeah, I think I screwed up a little and discouraged her from getting the One Direction watch.  But she did pick the craft kit over the watch when I told her she didn't have enough on her gift card for both. 

[davisgang90]

I have a similar system to the OP with my youngest son (10).  He gets a small allowance which goes directly into the "Bank" at a fairly high interest rate.  Occasionally, he will talk about spending it, but can't seem to come up with something to buy.  Consequently it keeps adding up in the "bank". 

[netskyblue]

I have never really liked the idea of just giving your kids money.  I grew up with the understanding that my parents paid for everything I should need, and if I had "wants," I could add them to a birthday/christmas list.  When I turned 14, I got a part time job to have some spending money, but as a smaller child, I was never in a position to BE spending money.  I didn't have my own transportation, go to stores, etc.   Chores weren't a paid job, they were something you did because you were part of the family, and that's what you DO as part of the family.

[Rollin]

I switched one of my children to Ting and told her that if she keeps her talking to a minimum I will share the savings with her.  Her and I share the same pool of texts and minutes, and it is compared to what we spent on Verizon.

She now only talks about 50 minutes a month (she's a big text user, but that is cheap with Ting) so we save a lot.  Together we were paying about $70/month with Verizon and now less than $30/month with Ting.  For her part she was at $35 with Verizon.  Anyway, she gets about $15 per month for limiting her usage.  $10 in her pocket and $5 in her savings account.  She digs it.

As far as the savings account i started out by matching their contributions 100% until they reached $1,000.  Then, I have tripled their interest rate beyond that (sounds like a lot more than it really is of course).  There is a catch though, once the money goes to savings account it doesn't come out unless it is something very important.  Otherwise, I encourage them to have an intermediate savings account.  Typically when they get a check for a birthday they put 70-80% in long-term savings, and the remainder to spend more immediately (short term savings?).

[RugosaB]

When our kids were young (they are 28, 26, 25 now) when they were 3 we started our 'method.'
They got the amount of money each week equal to twice their age.
Automatically, one half went  in long term avings for college.
1/4 went into a fund that we called 'short term' savings. To spend that money, the child had to talk it over with mom or dad and all of us would decide if that was a good thing to buy. I don't think we ever said 'that's a bad idea.' This taught them to think about what they were spending their money on, but it also taught them that they had a say in what it was spent on
The 1/4 left was theirs to do with as they pleased

We bought lunches at school, clothes but we watched them and could change that if we saw a problem - we did not.

They were given this money because we told them they were part of the family, Daddy worked and wanted to share what he got with his family.

Now, they had costs if they did not do what they were required to do - a payment for me, the one that had to do it. Toys had to be picked up at the end of the day, or pay Mom 25 cents for each item she picks up. Didn't take long for them to figure out how to pick up the stuff. The had to keep their rooms clean, or I'd go picking stuff up in there, or they had to keep the door closed because I didn't want to see it. My daughter's door was always closed!
Clothes in the hamper in the laundry room, books on the shelf, etc.

It worked for us, and it looks like it worked for the kids too. When our oldest was getting the loan for his house, the gal at the bank told him to tell his Mom and Dad thank you for raising such a responsible son

[wordygirl]

My kids are 9 and 11. We don't link allowance with chores (which they do to help me and the family, no other reason), grades (we homeschool and they don't get grades or follow curricula), or behaviour (I take a developmental approach to parenting and don't use reward/punishment strategies).

The kids get $7 per week. Two of that immediately goes into long-term savings. As does 10% of any money they earn (e.g. DD recently designed a website for her grandma's latest business venture). They also get about $200 each year at Xmas and on their birthdays from grandparents and 10% of that also goes into long term savings. Basically, both my kids already understand that Debt is a Bad Thing (as is paying interest) and understand that if they simply start saving 10% of everything now, they will have freedom at a very early age. It warmed my heart the other day to overhear DD reminding her younger brother of the benefits of saving.

We also instituted a short-term savings plan. If they save up half the cost of the desired item we will pay the other half. Not long ago DD bought a 3DS and DS bought a Wii U. They have to save over a minimum 3 month period (this gives them time to think whether they really want the item, and prevents them from getting around having to save by waiting for gift money and doing it in one fell swoop). This was initially begun to help them learn about saving for things you want, and when they are beter able to earn money we will revise it.

The rest is theirs to spend as they like. DD has gotten quite good at saving that money. DS still has a ways to go as he is rather impulsive and usually blows his money each week on some App or game. But he's getting better and I hope by the time he is earning money for himself that these habits will be ingrained.

Also, because my kids are homeschooled they have plenty of time to work so they should be able to start earning good money while still young enough to make mistakes they can live with. DD is already planning her first job when she becomes of legal age to work, but meanwhile she is off to a good start. That website job netted her a cool $1000. She has already told me she will give me $100 of that for helping her (I helped her set a schedule and manage her time properly to get the job done on time) and of course the 10% savings is automatic for her now. Meanwhile she wants an iPad and is currently researching whether to get a mini or a Nexus tablet instead. She embarked on this research herself and I am impressed because I fully expected her to just get a regular sized iPad, but she said she didn't want to spend it all at once and felt she didn't need a full sized one.

[MayDay]

My kids are 6 and 4.  The older started an allowance at 4, and has been fairly careful and tends towards saving it.  The younger gets an allowance mostly because her older brother does, and most weeks, I pick the cash up off the floor after she drops it.  She does accession ally manage to get straight to the grocery store or farmers market with it to buy a sweet.

We don't tie allowance to chores, it is just pocket money, the same as H and I have pocket money.  Eventually we will increase the money and they will be responsible for clothing, toiletries, cell phone, etc out of it.  For now it mostly functions to cut the whining.  Whenever we are at a store and they want something I say "sure, you can buy that with your money, did you remember to bring your wallet?"  The answer is of course no, the whining is over, success for me!

DS recently saved up for over 6 months 90$ towards a ceiling fan that he wanted for his bedroom.  Then a huge lot of Legos got posted for sale used and he bought them instead.  I think it will be interesting to see if he regrets the impulse purchase or is glad he jumped in the deal. 

Meanwhile my 4 year old got 50$ cash for her birthday from her grandpa and wants to buy "a present".  She has no clue what, and doesn't want/need anything.  I know if I take her to target and give her free reign she will want to buy 50 little 1$ bottle of hand sanitizer, lol.  If she truly had free reign she would buy a puppy.  So I will probably heavily guide her on that purchase as I think she is too young to be trusted with that amount of money. 

[Milspecstache]

I wanted my children to associate money with hard work.  So I set up an allowance that each would get each week but that was dependent upon a list of chores that each volunteered to do.  Since my oldest does the most chores he gets the most money.  Some weeks they don't accomplish everything and get paid less.  Some weeks they help me on extra things and I pay them more.  Regardless they now no longer ask me for money but rather they ask for jobs.

Once they get about 9 I force them to save 50% in an investment fund.  The investment fund can be used to do anything that makes money.  As we live on a farm they sometimes use the money to buy chickens or rabbits or goats, etc.  One child used the money to buy a lawnmower.  Currently I'm paying them 7% to loan me the money to pay down my highest interest rate debt, which is the land loan on our home.  So until I pay that off, around March of 2015, they can make 7%.

They definitely blow the rest of the money but it still teaches them math and it's good to see how they make decisions.  Most of them used their money to buy gifts for others at Christmas which was very rewarding to see.

The hardest part is the big portion of my discretionary budget that they take up.  My oldest gets nearly as much spending money as I get and the others aren't far behind.

[soccerluvof4]

i have kids 8, 10, 14 and 15. 8 and 10 hardest work 15 the laziest.

Having said that what we found works the best is just telling them these are your chores and depending on your attitude/willingness and over and beyond you can earn this much max.....which i guess would be considered an allowance BUT we are strict on the attitude and overachieve part. Everything is posted so they have no excuses. 15 year old is coming around more now that he has a girl friend! haha