We all have dreams for our kids. Most parents want to give their children a better life, provide opportunities to them that they never had themselves, and set them up for a successful future.
Does that successful future include being financially responsible adults? If so, what is your game plan to help them become financially savvy?
We can not financially support our children, pay for all the things, pay their college tuition, and just expect their finances to fall into place without any education or training during their 18 years under our roof. If money just appeared whenever we needed things as a kid, it is a hard reality to face when the same doesn’t happen in adulthood.
If you don’t teach your child how to earn and responsibly spend money now, how do you expect them to know how to do it in adulthood?
As a financial advisor, talking about money comes second nature to me. As a mom of four, I love when the opportunity arises to teach my kids a lesson about money.
The good news is that it can be pretty easy to give your children the foundational knowledge they need in order to become financially responsible adults, and it all starts with an allowance.
According to Money magazine, “kids who get an allowance tend to be more financially savvy than those who don’t. They score higher in a test of pricing knowledge, and they are less likely to mistake credit as a limitless form of currency.”
If you haven’t started already, I would first encourage you to create a strategy for how your child receives money. If your strategy so far is to give them money whenever they ask or “really really need” something, let’s revise it.
Ideas on How to “Pay” Your Kids
- $1 for every year of their age: an 8-year-old gets $8/week, a 9-year-old gets $9/week, and so on.
- Give money for a good report card or working hard in school.
- Assign chores or tasks a dollar amount: vacuuming the kitchen gets you $2, cleaning the bathroom is $5, and washing the car is $6.
- A dollar for every basket they make, or goal they score, etc. (My mom once bought me a beanie baby for every basket I made during my games.)
Studies have shown that if you only pay your child based on the chores they do, it eliminates their desire to do work beyond what they are getting paid for. If cleaning up my toys isn’t on my chore chart, why should I do it? Also, when a child is paid for work done, we are essentially treating them like a household employee and they can “quit their job” if the allowance amount is no longer a motivating factor. (That happened in my house!) It’s hard for a child to understand that Mommy doesn’t get an allowance; she has to clean up after everyone for free.
Kids who do unpaid chores have a higher sense of self-worth. According to a UCLA study, kids who spent more days and more time helping their family reported greater feelings of happiness than did kids who tended to help less.
Every family is different, every child is different, and one strategy may work better than the other depending on your and your child’s personalities.
Experimenting With Allowance in My Household
I used to live by the “pay-per-chore” methodology. We did this for about a year. My then 10-year-old and I would agree on a number of chores that equaled $10 worth of allowance, the 7-year-old had $7 worth of chores, etc. If they did fewer chores than we agreed on, they would earn less money.
This was not a sustainable way to operate. It created more work for me because I now had to monitor their chores and the quality of work done, determine how much money they should receive, and then make sure I had enough cash to pay them every Sunday. (Honestly, way too many IOUs were written. I’m surprised they didn’t go on strike sooner.)
My younger daughter is more spirited and decided $7 was not worth it and was satisfied when her half-hearted attempts at chores earned her $2. Money is money, right? And I will admit, for the past few months her only stream of income has been from the tooth fairy. (She also thinks that when you hand the cashier change, you’re actually making money because you’re getting more back. Sigh. She will require much more work to develop her financial literacy.)
My oldest, who is very structured and organized, loved this strategy because she could see exactly what she needed to do to earn her allowance. In an effort to make my life easier and give my 11-year-old daughter some financial responsibility, I signed her up for a GoHenry debit card and stopped with the pay-per-chore strategy.
Every Sunday, $11 is automatically transferred to her debit account. When she earns money dog walking or babysitting, that money goes to her debit card as well. When she wants to buy frozen yogurt or go to Target, she uses her debit card. I remind her that even though she doesn’t have a list of chores to check off, she is still being paid weekly, so she needs to give back to the household, walk the dog, help with her little siblings — and not groan every time something is asked of her.
Just this weekend, she asked me for her balance: $262! Holy mackerel, she’s rich! We agreed that that is plenty on her debit card, so now we are sending money to her savings account. We have a goal amount to build her savings to and then after that, she’s going to start investing.
Introducing an allowance, and allowing your kids to earn and manage money, will put them ahead in the financial game of life. You are teaching them the value of money, having open communication about money, and building confidence along the way.
