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Allowance Best Practices According to the Experts
By Jeff Eusebio
Your kids are bugging you for an allowance. Should you give one or not? You’ll see and hear some very strong opinions on both sides of the debate.
At FamilyMint, we believe there is no one, right answer. In fact, the appropriate answer depends on the parent, the child, and the particular circumstances you are both in. We have, however, seen allowance implemented as a relatively easy yet powerful part of financial formation. Done correctly, it really can help kids to appreciate money!
If you choose to give an allowance, FamilyMint makes it easy! You can set up automatic weekly or monthly allowance payments customized for each of your kids. This takes one more task off of your plate, you won’t be fumbling around for correct change, and the transaction history in FamilyMint will remind your kids where this money came from (you!).
What do the experts say?
An article by Michelle M. Haas-Dosher at the Credit Union National Association Inc. provides an excellent overview. She suggests the right time to start an allowance is as early as your kids start to understand the value of money (usually around age 6). She also addresses how much, how often, and for what allowance should be given.
What Experts Say About Allowances for Children
What do you think? Share your thoughts in the comments.
Copyright Allowance Best Practices According to the Experts © 2011. All rights reserved
A Budget is a Budget – Except When It’s a Spending Plan
By Jayne Berkaw
According to www.word-origins.com/, a “budget” was originally an Old French bouge, or leather bag. “The word’s financial connotations arose in the 18th century; the original notion being that the government minister concerned with treasury affairs opened his budget, or wallet, to reveal what fiscal measures he had in mind.” Today, depending upon which site you refer to; it’s simply a financial plan, a plan of allotment, an itemized estimate, etc.
One of our earlier blog responders suggested that “budget” has negative connotations these days, so he prefers “spending plan.” He suggests that this indicates that the planner is in control of his or her own financial destiny. I agree that “budget” drops with a thud into the pits of many of our stomachs, so I’m adopting his view. Down with budgeting; up with spending plans!
No matter what you call it, though, your kids need to know how to do it. Start by giving them everyday examples of what a dollar (or two or ten) can buy. Using different amounts, explain how many or few items like candy bars, pencils, books, movie rentals, etc., can be purchased with various (small) amounts of money. Increase the amounts and sizes of your examples over time. Once is not enough on this lesson. Do it a lot, maybe making it into a guessing game to keep it fun and interesting.
Then help them come up with their own spending plan – a written account of their “income” (allowance, gifts to them, earnings…) and their “expenses” (donations, gifts for others, long-term savings for larger ticket items, and short-term savings for weekend or after-school fun…). FamilyMint is an amazing resource for teaching kids financial planning and goal setting in the interactive, online world that they will operate throughout their lifetimes.
We help our college-going son with this process each year as he figures out what he’ll need for apartment rental, food, books, clothes, fun…and savings. As he’s gotten older, more complex topics such as handling credit and debit cards, car payments and other debt issues have been added, along with where the money will come from to cover all of these expenses.
No matter how old you are, no matter how much money you have, a spending plan is your way of assuming control of your life. Do it for yourself and, more importantly, teach it to your children.
Copyright A Budget is a Budget – Except When It’s a Spending Plan © 2011. All rights reserved
Can’t Afford to Pay an Allowance? Maybe It’s Just How You Define It.
By Jayne Berkaw
A few weeks ago I wrote a post about paying allowances, noting that it is “one of the big conundrums of parenthood” and that “a lot of it is based on your own experience, your view of its place in parenting, your financial situation, etc.” One of our FamilyMint parents commented that paying allowances was difficult in light of her family’s limited “spending” money, so I wanted to touch on the topic again with that in mind.
There are lots of reasons to back away from paying an allowance to your child. Job loss, unplanned medical issues, home repairs, and other unexpected expenses can wreak havoc on family finances. But here’s the deal: as parents we simply have to teach our kids how to manage money so they can grow up to be financially responsible adults. We have to give them lots of opportunities to practice saving and using money, and we have to let them learn from their mistakes and applaud their successes.
The US Dept. of Agriculture estimates that it now costs an average middle-income American family $222,360 to raise a child from birth to 18. In their estimate they include things like housing, food, transportation, clothes, child care, health care and misc. things like haircuts, sports equipment, computers, and books. These are things you are likely already paying for, so they are also things you can consider letting your child control through an “allowance.”
This is an idea mentioned on many money sites as a way for families that can’t “afford” an allowance to actually pay one, reaping the benefits of loads of teaching moments and, importantly, building kids’ financial skill and confidence. It’s pretty easy too:
- You and your child sit down and talk about what you spend on him/her during a week or month; things like clothes, school lunches, snacks, movies, sports, etc.
- You talk about what items your child can be responsible for, being careful that choices are age appropriate, and that you discuss what a budget is and how to set priorities.
- You pay your child the agreed upon funds, relieving yourself of those responsibilities, enabling your child to experience the responsibility and all that goes with it, and you become coach and mentor – hooray!
If the family is navigating rough financial waters, adjusting allowance teaches them that when times are tough, belts get tightened. Just be sure to explain what the financial pressures are, with assurances that when things stabilize, things will be readjusted.
I appreciate your comments, so keep them coming!
Copyright Can’t Afford to Pay an Allowance? Maybe It’s Just How You Define It. © 2011. All rights reserved
Self Control is the Real Lesson of Budgeting
By Jayne
Berkaw
“Right now I have enough money to last me the rest of my life – unless I buy something”
- Humorist Jackie Mason
Anyone who can relate seriously to Jackie Mason’s quip has never been taught how to budget. As parents, we have a responsibility to build our children into adults who don’t just cope, but thrive. A lot of it boils down to teaching them self control in making good daily decisions, including how they manage themselves – and how they manage money.
Everyone has their own approach to parenthood, but there is no replacement for teaching your kids how to thrive by showing them how you yourselves thrive. Talk to them about the expenses you manage, like mortgage/rent payments, utility costs, phone bills, food and other regular expenses you must plan for each month. Then talk to them about the “things” you want to have and how you plan to save and pay for those variable expenses. If you’re saving for a 60” plasma TV, talk it over with your kids. Explain how much the TV costs, how much you are saving for it weekly and, at that rate, when you will have enough money to make the purchase.
Take the mystery out of the family finances by sharing the basics of the family budget with your kids. Talk to them when you’re in the store, at the dinner table, whenever a “teaching moment” presents itself. Then get them started on their own budget through an allowance.
With an allowance, you and your kids can set up fixed “costs” like savings and charitable giving, and variable costs like treats and snacks, toys and movies, etc. You can allot a percentage of their allowance to each budget item, and you can review progress regularly. With FamilyMint, you can break savings down into goals like college expenses, computer/technology wants and needs, or even savings for a new bike, video game or snow board. You can show them how saving a bit more each week will help them reach their goals earlier. They can move their funds around to make that happen in a colorful, fun virtual environment that will keep them coming back!
You want your children to have enough money to last the rest of their lives, so keep them grounded in the reality of financial limitations and responsibility.
Copyright Self Control is the Real Lesson of Budgeting © 2011. All rights reserved
A View from the Other Side…Allowances
By Jayne Berkaw
One of the big conundrums of parenthood is whether or not to give your kids an allowance. A lot of it is based on your own experience, your view of its place in parenting, your financial situation, etc.
My husband and I agreed that giving our kids a regular “payment” they could slice and dice to cover their wants/needs was something we wanted to do. He wanted it to include the purchase of their own clothing when they reached 12 years (as his family had done), as well as entertainment, toys and games, etc. I wanted a say in clothing purchases, and was able to negotiate that out. We agreed that they would be paid their age on a weekly basis with percentages broken out for cash, long-term savings and charity. Those last two went into envelopes that eventually were deposited or mailed.
Was this the best way? Doubtful. But we read about it somewhere and liked it, plus the kids enjoyed getting a “raise” every birthday. However, were we constantly trying to remember if we had put the money in the envelopes? Yes! Did we find ourselves searching for ones and fives and even end up putting IOUs in the envelopes when we had none? Yes! Should we have discussed what qualified for a longer-term goal? Yes! Yes! Should we have better evaluated charitable causes that might have had enduring value to them? Yes! Yes! Yes!
Obviously, there’s no simple answer, but today’s kids have more money and infinitely more product ads and activities luring them to part with it. As parents, it’s important, even vital, that we give our kids the experience of figuring out what they want and how they’re going to pay for it. As someone I know recently pointed out, we have to give them the opportunity to fail, and learn from it, while the amounts involved are still minimal.
The beauty of FamilyMint is that if you choose to give an allowance, the tools are there to:
1) Open the conversation first between the parents, and then between the parents and the children, and,
2) Once decisions are made, take the drudgery out of the process for the parents and make it a highly motivating learning experience for all.
If allowances are not for you, the FamilyMint tool still offers incredible ways to teach your kids to appreciate the value of money and how to use it. Take advantage of it!
Copyright A View from the Other Side…Allowances © 2011. All rights reserved
Teaching Kids to be Money Smart
By Bob Masterson
Creating money-smart kids doesn’t happen overnight. It’s a skill and a behavior that has to be nurtured over time. The skill lies in learning the value of saving, giving, and spending conscientiously and understanding the difference between wants and needs. The behavior comes from the habits formed in doing these things over time and learning from mistakes.
The earlier you start your child on this journey, the better. Children quickly grasp the concept behind spending money and soon their appetite for things can be insatiable. How can we best instill in our children the value of money and living within one’s means?
This is just an excerpt from an article FamilyMint recently had published in The Old Schoolhouse Magazine entitled “Teaching Kids to be Money Smart”. Click here to read the rest of the article.
Copyright Teaching Kids to be Money Smart © 2011. All rights reserved
Tips on Giving an Allowance
By Bob Masterson
An allowance is a great means to teach children how to manage money, develop budgeting skills and encourage independence. By giving an allowance and giving the child the responsibility to pay for the things they want and activities they like to do, it helps them see money is a limited resource and they must budget it wisely.
But an allowance should never be looked at as a salary or something a child is entitled to. Being part of a family means pitching in around the house and doing ones part to help out and an allowance should not be tied to this. Certain chores, though, can be assigned above and beyond their daily and weekly duties as a means for your child to earn extra money.
How much should you give as an allowance? As a general rule, allowance should be tied to what expenses you want your child to cover, leaving some room for savings and giving. In our house, we begin giving an allowance of 50 cents a week when a child turns six, as they are beginning to have a decent grasp of how money is used. 10 percent of their allowance goes towards charity, 30 percent towards college and 20 percent towards long term savings. The rest is up to them. They save for toys or games they want to buy, but if they want to get a treat of some kind, they are expected to pay for it themselves. This gives them the opportunity to see the cause and effect of their spending decisions.
As our children get older, their responsibility towards money and associated allowance grows along with the expenses for which they are responsible. For example, extra curricular activities such as Boyscout dues, camping trips and movies are the responsibility of our three older boys. They enjoy the responsibility of managing their own money and make adjustments to their finances as priorities or unexpected events happen just as we adults do.
In the end, allowance and the responsibility that goes with it is a means of preparing your child for adulthood.
Copyright Tips on Giving an Allowance © 2010. All rights reserved
Kids and Money – Practical Tips for Parents
USAA recently had webinar program with experts answering parents questions and providing tips around kids and finances. Topics include:
- Raising financially savvy kids
- Teach the value of saving
- Share money lessons
- Be a good financial role model
Very interesting program covering numerous common questions and concerns parents have.
The FamilyMint Minute: March, 2010
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