Do your kids get an allowance? Are you trying to teach them about how to be smart with that money? Even young children can learn some great concepts about smart spending and financial responsibility. Here’s a great guest article by youth finance expert John Lanza on how to teach your kids to be smart with their allowance.
Although it certainly seems intuitive that kids should have to work to earn their allowance, I have found—and most experts agree—that it’s not the most sensible way to set up an allowance system. By providing our children with an allowance that’s unencumbered by chores, I believe we are more likely to raise kids who become more comfortable with money. They’ll be better equipped to understand that money is simply a means to an end and not an end in itself — a VERY important lesson. When we can foster positive associations with money and engage our children in open money conversations, we can start to demystify this once taboo topic. By removing the link between chores and allowance, we can raise what I call more “money comfortable” kids.
All that being stated, most parents still tie allowance to chores. Most parents also don’t necessarily explain the purpose of an allowance. The fact remains that parents need a different, and better, approach. Although there are many noble efforts being done in schools, they are unfortunately not the answer. Kids are statistically VERY unlikely to learn anything other than basic money math in school. The burden of raising money smart and money comfortable kids still falls on you, the parent. And if you’re not active about it, your kids will just learn by observing you.
Teaching Your Kids About Earning Money — A Different Lesson
In her short paper, Motivation Theory Applied to the Allowance/Chore Debate, Karyn Hodgens (owner of Kidnexions and author of Raised for Richness) most clearly identifies why allowance and chores should not be tied together. It’s best to look at what each — allowance and chores — are designed to accomplish. An allowance is a tool to teach kids how to handle money, make smart money choices and eventually become “money comfortable.” Providing money for chores is a way to teach kids that earning money requires effort. This is a terrific lesson — just a different lesson than the one allowance is designed to teach. Paying children for chores that they are required to do and will always be required to do while living at home (e.g. clearing the table, making the bed, brushing teeth) also leads to a problem when they become older and might be making their own money (not from an allowance). They can’t opt-out of those chores (now or later), so why pay them for those activities in the first place and create a possible conflict down the line.
To teach children the incredibly valuable lesson that making money requires effort, you can give them what Karyn describes as “above and beyond” chores that they aren’t required to do (e.g. shoveling snow, raking leaves, etc.).
Reduce Money Conflicts
The other big reason to untangle basic chores and allowance is that it helps reduce potential conflict and negativity associated with money. There are no threats made to take away money when a bed isn’t made. Your child can certainly be admonished when the chores go undone, but there’s no associated “money negativity.” With so much negativity in our society associated with money, I feel it’s essential to build up as many positive vibes when it comes to money as possible, so kids feel good about the green stuff.
Ditch the Pig
The piggy bank has been around forever. But here’s the problem — it doesn’t work. First, it’s pretty obvious that if you’re trying to make someone comfortable with something, you certainly don’t hide it from them. The piggy banks suggests to the child that the parents don’t feel they are mature enough to deal with money. If that’s the case, then why even provide an allowance? Piggy banks are also typically associated with the concept of socking money away for a “rainy day.” As far back as the 60s, The Time/Life Guide to Family Finance noted that the idea of saving money in a piggy bank for a “rainy day” was too abstract for younger kids. I’ve found that kids are very good at setting savings goals that they can achieve in the not-too-long-term, enough for them to build the very important money smart behavior of delayed gratification, made famous in Psychologist Walter Mischel’s “Marshmallow Tests.” Ditch the pig. It’s time for a new, clearer paradigm.
Go With What Works – Three Clear Jars
Three jar systems seem to be everywhere these days. We use a Share jar for charitable giving, a Save jar for longer term goals and a Spend Smart jar. Notice the word “smart” to reinforce the importance of thinking when spending money. Three jar systems have proliferated because they work, particularly when you have a solid allowance system. The simplest approach is to provide your child an allowance that is one dollar per week per the age of the child. For example, our seven-year-old gets seven dollars per week. To help them build good money habits, have them put one dollar in their Share jar and two dollars in the Save jar. In an effort to encourage autonomy, give them discretion over the balance.
Incentivize to Behavior-”ize”
Another terrific idea I highly recommend is that of motivating behavior, which I learned from David McCurrach’s workbook, Allowance Magic. For example, you can “match” every dollar put in the Save jar with a quarter, dollar or whatever you might think is appropriate. This helps kids understand that saving can generate additional money (a’la interest) and it helps guide them to adopt a behavior you’re trying to encourage. We even incentivize our kids to buy things we think are valuable, such as books. We effectively double their purchasing power by splitting the cost of any book they are interested in buying.
Build Those Good Habits Now
So will all of this work? There are no guarantees, of course, but when you step back and realize that becoming financially literate really boils down to becoming comfortable enough with money to make smart choices, I know that following this approach will move you well on your way to raising money smart, money comfortable kids. Getting allowance right will help you help your kids build good habits when they are young and help you avoid having to break bad habits as your kids age.
John Lanza is the Chief Mammal at Snigglezoo Entertainment, Creator of the Dr. Toy award-winning Money Mammals DVD & book, Joe the Monkey Saves for a Goal, that helps kids learn to “Share & Save & Spend Smart Too” and the recently published Joe the Monkey Learns to Share. Lanza also runs The Money Mammals Saving Money Is Fun Kids Club for credit unions nationwide and blogs, tweets and writes often about youth financial literacy. Find out more at www.themoneymammals.com.