Thursday, November 2, 2017

Allowance, To Give or Not to Give (And When, How and Why According to the "Experts")

I give my kids allowance, but I don't think I do it well.  Off and on, we have tried several different ways, since they were 4.  I want them to learn the value of money, how to save for what you want, and how not to spend my money on some plastic toy you picked up in the checkout line in Target that you will lose or break or forget about in a week.  Okay, I admit it, this was my only motivation in the beginning.

This year, I have a ten year old so I figured I need to get serious about doing this allowance thing.  I figure I have about 7 years to get him in shape before he will be making his own major financial decisions about school loans, cars, jobs, etc., and I definitely don't want my kid living in my spare room because he or she didn't understand how to manage money. So, I've been studying up, and here is what I found.

1) Start Early.  Almost all the experts agree that you should start early, and by early they mean 4 or 5 or as soon as your kid can count money and distinguish between "wants" and "needs". Quite frankly, I think this skill deteriorates as they enter puberty and everything becomes a need.

My son got into Legos at the age of 4, and he really wanted this expensive Lego set. With the attention span of a 4 year old, I would have had to nag him for 6 months to remember to do his chores so he could save for said Lego.  That didn't sound appealing to me, so I let him borrow the money I set up a simple excel spreadsheet and each month we would subtract his payment from the borrowed amount. I didn't charge interest. I'm not a total meanie.

As expected, he took the Lego and ran after his first payment.  So we learned about "Repossession".  And I did it too (because I really am a meanie).  I took that already built and much loved Lego, and perched it on my dresser just out of reach, occassionaly I even played with it in front of him, and I kept it until he caught up with his loan payments.  (I don't even like Legos.) It took 6 months, but he paid back his loan, and to this day, that is still one of his most valued Legos.   He is so proud of himself, and will still tell me the story about how hard he had to work to get it (like I wasn't there or something)  

2) Don't tie the allowance to chores This goes to the whole "you shouldn't get paid to contribute to the family".  This is not without controversy, and some parents disagree with this and pay for chores  I tied allowance to chores for a while and I found two problems with it:
  • First: I asked my son to take a basket upstairs and his response was "How much will you pay me for it?" That didn't go well for him. He ended up having to inventory everything in his room that I paid for plus the money I spent on his extra activities (just for the current year only).  I'm not a servant, and I am not raising royalty. After he added all that up, he quickly realized that carrying the basket for free was in his best interest.  
  • Second: If there is nothing that they want to buy at that time, then they stop doing the chores. I solved this one by giving them their money up front for that week before chores.  If they don't do the chores then they pay me back the money. Once you hold something, you kind of want to keep it because it's "yours".  If you have ever found yourself buying something with a coupon that you don't need, don't really want, would never look twice at because you didn't want to lose or waste the coupon, then you've fallen for this too. This is why the sales guy always tries to get you to hold the item they are pushing (and I have the Kirby to prove it.)
However, you can get paid for extra chores (the hybrid approach).  I'm currently using this hybrid approach. The kids have a set of responsibilities that are family responsibilities/expectations (mainly taking care of the family pets, helping with dinner, cleaning a bathroom), then they have chores that are "extras". 

My son wants a gift that is significantly more than the Christmas budget that I set for him (i.e. the amount I am willing to spend), so I told him I would pay half, but he would have to come up with the other half, so I've made some extra jobs available to him.

I also came across this novel approach. One family has their 9 year old identify problems around the house, propose a solution, and then negotiate a payment.  I love this!! It may be showing up in the rotations soon.

One expert said, you shouldn't tie the allowance to anything. I can't wrap my head around this unless you are purely using the allowance as a money management teaching tool, which still seems crazy to me, because unless you are a trust fund baby, how do you think you get money?  So for me, it has to be tied to work or it's a wasted opportunity to teach work ethic skills. If you don't think this important, maybe the story under #5 will change your mind.

3) Make them save at least part of their money.  Some even say there should be three categories spend, save, charity.  

Why save money?  To teach delayed gratification, which is really hard because everything in this world is instant.  My kids asked me what a commercial was a few years back. They don't even know what it is like to wait through a commercial for goodness sake. Studies show the ability of a child to delay gratification is very much tied to their future success.  I could write a whole other article on how that shows up in the work place, but another day.

4) The going rate is $1 per year of age.  For my $10 year old, that would be $10 per week.  Honestly, this seems really high to me, but that might be because I have not enforced a save and charity category, and I also don't make them spend their money on clothes, art supplies, music and sports equipment, etc., as was suggested in various articles.  

At first making them buy their own clothes seemed harsh to me, but then thinking about it some more it made more sense. If you follow the $1 per year rule, that money goes up, and will be cutting into your budget, so think of it as cost transference. So I don't need to buy Ugg boots as part of your fall wardrobe, but you can pay for them especially once they are teens (At the age of $15, that's $780 per year).  

The idea is to give your kids enough so that they can get what they want, but not so much that they don't have to make difficult decisions about trade-offs.  Try to mirror financial decisions they will have to make as grown-ups, but on a level they can relate to.  

5) The average time spent on chores is 6 hours per week.  I don't know if I'm totally buying this, but nonetheless I am no where in the ballpark on this one.  Mine is about an hour a week, a little each day, and this includes the expected chore list and the "extra" one. Part of my reasoning has been they are so busy, and I don't want to add stress to their (or my) morning or afternoon by adding stuff to it. 

Then I started thinking and decided I needed to add the time they spend on chores because not only will they need to make trade-off's with their money, but also with their time

This point was really driven home recently when my husband hired someone to do a job, and the young man didn't show up for work because that morning he dropped his iPhone and needed to go fix it instead.  Of course he couldn't call because the iPhone was broken.  This was his excuse. He really thought this was a valid and reasonable explanation as to why he just didn't show up to work.  This is a bright and courteous kid, who just didn't learn what he needed to learn before he hit college and started trying to earn some money.  

Contrast this with the 15 year old that I know who bought her own horse with money she saved.  Seriously impressive, not to mention she is AP and will graduate a year early, so I starting to think all this responsibility stuff is tied together.  

6) Don't bail them out when they can't afford to get everything that they want (see above about "trade-off's).  

This is tough, I know.  I really am not a meanie (but please don't tell my kids).  So think about it this way, will your kids be able to live the lifestyle they are currently accustomed to on the salary of their first entry level job  When you really start to think about how they live and what they have access to that you paid for, I'm guessing the answer is a big fat "No".  

Kids think the stuff they enjoy right now will always be there for them. It took time and a whole lot of effort to get what we have now.  Our kids are going to have to learn that lesson at some point, and I can tell you it won't be enough just to tell them about our lean days of ramen noodles and mac n cheese, as they sit watching their big screen TV while playing the iPad before heading off to an after school lesson I'm shelling $$ out for.  I don't want them in a mountain of credit card debt in their 20's, and I for darn sure don't want to be paying for them to go out and have fun with their friends, pay their BMW car payment, and buy them a wardrobe for work that they "need" to look professional. 

If you think they will learn how to manage money without actual experience doing so, tell me if you ever uttered the phrase, "when I have kids they will never do (fill in the blank)," Now that you actually have kids and experience, you know naive you were. 

More importantly than not wanting to share my retirement money with them, I might not always be there to be able to bail them out, so it's my obligation to make sure that I give them the tools they need to be able not only to live independently and to survive, but to thrive.  Sometimes that means you have to learn some painful lessons, and guaranteed it will be less painful 4-18 with you then 18+ and in the real world.

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Why I Don't Tell My Daughter She is Pretty

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1 comment:

  1. Great article. My kids earn most of their money by doing workbook pages, and it's great to be able to say, "well if you save the money you can buy it" whenever they see something they want in a store. I don't make them buy their own clothes, though; I'm not sure I want to live with their clothing tastes. I do wish I'd thought of your loan with repossession idea on a few occasions, and also the payment up front idea; the workbooks are not optional just like going to a job not optional each day, but it would have been nice to give them a more internal motivation.

    They do also get an allowance which started when they learned to count and for which no ongoing work is required. If we had it to do over again, we might do it differently. Sure, they can go on welfare when they grow up and get money from the government, but that's not really what we're trying to teach them.