How we approach kids' allowance

[getwilde]

Hi! I'm a long-time lurker but haven't posted much. I semi-retired a few years ago at age 43 to be able to spend more time with my wife and young children.

When our kids were just starting elementary school, we decided it was time to start teaching them about savings, interest, compound interest, and opportunity costs. We gave them each a couple rolls of 100 pennies, and introduced the Bank of Mom and Dad. Each month, we explained, they would add up their money, and we would pay them 1 penny interest for each 100 that they had. Any time they earned money, they could spend it, or deposit it in the BoM&D, or some combination. They could withdraw anytime; it's their money. When they were at stores with us, we discussed wise spending habits. Later we discussed opportunity cost (ie how money spent and can't accrue interest). And over time, we pointed out how compound interest works. What we haven't discussed yet is how 13%+ annual interest (risk-free!) isn't realistic, but that conversation will come. They know about the stock market from Dad, but we intend to eventually help them start investing there. I'm still hoping for a couple cases of (young) buyers remorse, which will open the opportunity for additional conversations. Baby steps.

As for allowance...
We don't pay them to do chores around the house. But we do pay them when they help with the "family business" (rental homes). They don't receive "allowance" per se, but they do receive high returns on their savings. And they don't spend too often but they occasionally buy something they want or as a gift for others. In just five years, they've each managed to accumulate ~$3.3k. Not bad for elementary aged kids. We'll probably keep the Bank of Mom & Dad running (with increased sophistication) until either they turn 18, or we can't afford it anymore.

Time will tell if we did things right.

 

[Kork13]

Honestly, you're doing great by simply making the intentional effort. Regardless of the dollar amounts, they'll learn the concepts through your repeated exposure. I'll be thrilled if I can get something even remotely similar set up & working with my kids -- our oldest is 6y/o, so we're quickly approaching the time when we can start teaching about money management.

 

[athena53]

Sounds like you have a good plan.

I used to consider money a "lazy" gift but my granddaughters are 5 and 7 and, with their parent's agreement, I give them each $60 at Christmas and birthdays. I want them to learn to manage money- to spend some, to give some away, and to save some for later. Their parents help with the giving away part. I take them to Shear Madness for haircuts and they have a ton of stuff for kids to buy (bribes for good behavior?) and that's where the girls like to spend their money. It's interesting to watch- a Beanie Baby or a sticker set? Can I afford this with the $10 I brought? I've let them know there are no "wrong answers". If they buy something and it's a disappointment they'll have learned something in a low-stakes environment- it's not like locking themselves into an $800/month lease on a sports car.

Eventually I want to get them interested in investing in the market, maybe through RobinHood- but it's way too early.

Their little brother turns 3 in June so it's too early. I just got him a Christmas card with Snoopy that plays the theme from "A Charlie Brown Christmas" every time he presses a button on the front. I may get banished for that.

 

[rodi]

We did something similar - but bank of M&D was the "Conti book". They also had passbook savings at the bank. We paid for some chores. And when we had big projects (like when we put in a paver driveway) we paid $15 an hour (they were 12 & 14 at the time). They could withdraw but were encouraged to save for big purchases. Younger son earned enough for an xbox from the driveway project - as soon as he had enough he stopped. Older son earned enough for a gaming computer (he kept working longer till he had enough.) Monthly interest of 1% on the conti book.

One thing I picked up from my sister in law - Any birthday/christmas money that came in the form of cash was theirs to spend or deposited on the Conti... gift money that came in as checks was deposited in the bank savings account. They were both surprised they had over $1000 each when they turned 18. (I didn't remind them about the bank often, lol.)

When they got part w2 jobs in high school I match the first $1000 they put into Roths. That really got their attention and we have had long discussions about index funds and investments compounding over time.

Even though I treated them the same, one son is much better about saving. I think there are just inherent traits towards saving vs spending.

 

[pacergal]

Our kids got a small token of spending money, certain chores were expected to be done as being part of the family and living in the house. They could earn extra money for other jobs/chores, but only if their weekly jobs were done prior.
We encouraged 10/10/80--save 10 %, give 10%, spend 80% from early age.
DD used to watch Susie Orman on TV years ago!
Both kids are pretty good with budget/savings as adults.

 

[Keim]

We never did much in the way of an allowance. We did role model good behavior, talk about saving and bills, etc. As teens both kids got jobs and we coached them on handling money.

Seems to have worked. Both have saved for international trips in HS, and the older is already investing in Vanguard.

 

[Sunset]

Our kids got a small token of spending money, certain chores were expected to be done as being part of the family and living in the house. They could earn extra money for other jobs/chores, but only if their weekly jobs were done prior.
.....

+1

This way they had the chance to save up for something or spend it all each week. Either way it taught them something about handling money.

It's how I was raised, it worked for me, but not my sister. So not a sure thing.

 

[Sojourner]

Honestly, you're doing great by simply making the intentional effort. Regardless of the dollar amounts, they'll learn the concepts through your repeated exposure.

+1

My parents did something very similar for me and my siblings when we were in grade school. I remember when I had saved up $300 and being so proud and impressed with myself. I took very naturally to the concept of "saving", whereas my siblings... not so much. They always "withdrew" and spent their savings as soon as it got high enough to fund the purchase of something they wanted (candy, toy, record or CD). These saving and spendthrift habits have continued well into our adult years. I suppose this just goes to show that good parenting, while important, can't overcome genetic tendencies.

 

[Walt34]

Even though I treated them the same, one son is much better about saving. I think there are just inherent traits towards saving vs spending.

This reminds me of DW's grandnieces. The older one is now 16 and is on track for a full ride scholarship at John's Hopkins where she wants to study genetics - she could graduate HS now but wants to wait a year. On some statewide math test last year she set a new state record for high score. (Clearly she is only related to me by marriage.) Since she was a little kid any money that came her way was saved and she now has enough to buy a decent used car, although she has no interest in that, or even getting a driver's license. For a prom she wore a dress of her mother's that fit. Look up "introvert" in the dictionary and that's her picture there.

Her sister, younger by two years, is entirely different. Although apparently equally bright, any money she has saved has been incidental. For the most part money is spent as soon as she gets it. And of course she's an extrovert. I predict she will be a fighter pilot.

 

[RobbieB]

I used to get a dime a week for picking up dog poo. I also learned early self employment and sales skills.

We lived close to a golf course and a buddy and I would find golf balls hit over the fence in the fields around the course. We would sell these balls to golfers in the parking lot of the golf course sometimes being run off the property by the greens keeper. More thrills and excitement.

Sometimes I would make 2 dollars a week doing something I enjoyed compared to a dime for picking up sticky messy dog poo. What ever it was it was more than a dime always -

 

[Keim]

I used to get a dime a week for picking up dog poo. I also learned early self employment and sales skills.

We lived close to a golf course and a buddy and I would find golf balls hit over the fence in the fields around the course. We would sell these balls to golfers in the parking lot of the golf course sometimes being run off the property by the greens keeper. More thrills and excitement.

Sometimes I would make 2 dollars a week doing something I enjoyed compared to a dime for picking up sticky messy dog poo. What ever it was it was more than a dime always -

I, too, grew up next to a golf course. Moved there as an 11 year old, and noticed his range balls and lots of others landing in my yard. I gathered them up and walked into the pro shop to talk to the owner about buying them from me for 0.10 to 0.25 per ball. He turned bright red, called me a thief, etc. As I turned to leave one of his customers said "I'd like to talk to you about buying some of those used balls." For the next 7 years I sold used balls to the HS golf team, and other golfers.

I never spoke to the owner again. He should have taken my deal.