Allowance: How To Teach Your Children To Save Their Money

Allowance

Given the issues in my first marriage with money (and my ex’s continuing issues managing his), I’ve been trying teach my children how to manage money with an allowance. We’ve come across some obstacles. The children seem to think that a “bank card” means an endless stream of magically replenishing money. They don’t equate it with the reason Mom and Stepdad are out of the house 40 hours a week. As well, both of my older children have no qualms with spending their money on whatever shiny little object they fancy. It’s less about the object itself than the ability to spend the money in their pocket.

Goals

We’ve tried an allowance before with the following goals in mind:

  1. I’d like all my children to have college savings. I started 529 plans within weeks of each of their births and contribute monthly to them. I also want them to take ownership of their success after leaving the nest – and I want them to contribute. My end game is I want them to see that money as something they earned, so they won’t spend frivolously while in college.
  2. I want them to equate their hard work with value. I want them to be proud that they’ve worked hard, saved their allowance and have something to show for it (aside from gum ball machine candy and broken plastic toys).
  3. I need them to understand that some people a lot less than we do and instill a sense of civic responsibility. As a family, we’re not religious, but I still think it’s important for them to understand that we’re all responsible for everyone else and we can make a difference. I’m also hoping that this will help to connect them to the community and feel ownership of it.
  4. We’ve tried to ingrain in them that mom and stepdad pay for housing and food – and they are expected to chip in without the expectation of being rewarded.

Our original allowance scheme hit a few snags. The children completed chores and I gave them money for completion once a week, deducting for chores that weren’t complete. The money was split into three banks – one for spending, one for sharing, one for saving. The sharing fund was to be sent to a local charity – but we didn’t have a set way of doing that. The saving fund was to be put in their 529 plan. The spending one was to allow them to save a portion for the bigger ticket items, but still have some pocket change.

Where it Fell Down

We had a lot of trouble with implementation for several reasons:

  1. The joint custody schedule means the kids aren’t at my house on the same day every week. It’s not possible for them to do chores on the same day every week.
  2. There were problems with accountability. I had to monitor the chores for completion and consider whether reductions in the final amount of the allowance were warranted. We didn’t have set amounts for reduction or the ability to add more if the child went above and beyond.
  3. I had to have cash on hand once a week. In today’s digital world, I rarely have cash.
  4. The children were not motivated to save their spending money for larger items.
  5. The children kept nipping into the other banks when they needed spending money and I wouldn’t notice because I wasn’t keeping track. (I mostly stopped this by putting tamper proof seals on the banks).

Eventually, it just kind of fell apart. The kids still did some of their “chores”, but not all of them. I gave them their allowance on an as needed basis (when I had cash).

Our New Plan

With the new school year starting, we’ve decided to try it again. This time, we’re taking the learnings from the last time and making some changes.

  1. The children have a set list of chores set out in a signed six month contract. The contract lists their responsibilities as well as parental responsibilities and is posted on the wall in their rooms to remind them of their responsibilities.
  2. Their $20 allowance will be provided on a monthly basis on the last day of the month. I’ve opened bank savings accounts in both of their names and set up a regular monthly $15 deposit to each account. This saves me from having to have cash on hand weekly (although I’ll still have to have $10 cash on hand at the end of the month).
  3. The contract details specific chores and learning is built in too – we have an online subscription to IXL and they need to complete four lessons per week.
  4. The contract also sets out how much of their allowance goes into each pot. We’ve decided that 37.5% will go to college, 25% will go to charity, and the other 37.5% will be split. They will have a cash portion that they can spend, and a bank portion that they can only spend once they’ve accumulated at least $20. They’ll need to identify what they want to spend the money on, how much it will cost and set out a way to achieve the goal (ie how much they want to put away).
  5. We’ve also given them an “out” in the contract – if they’re not able to complete a chore due to scheduling, they can “make up” by completing another IXL lesson. This gives them a little more control over their ability to earn.
  6. We’ll be reviewing their allowance and their bank accounts once every six months as a family meeting (the contract even sets out a meeting date). We’ll show them the balances in their account, discuss “interest” and how it’s divided between the pots, and figure out if the chore schedule needs tweaking before signing the next contract. We’ll also decide where the “share” money is going to be donated.
  7. I’m hoping that the new system we’ve developed will help us to help the children to make and reach financial goals. It should teach them responsibility and give them ownership. I’m hoping I’ll be able to wean them of their tendencies to impulse buy in favor of saving for bigger ticket items (my son is currently scheming to get an X-Box 360 – he’s suggested to his sister that they work together to achieve it).

The children have already indicated that they’d like their allowance money to go to animals. Our first charity share will be with a local helping animals training facility. I will be calling them to ask for a tour so they can see what use their money will be put to.

We’ll see how it works anyway. Our first family allowance meeting is set for the first week of January – I’ll report back then.

What about you? Do you have an allowance system for your children? What’s working for you?

Image Credit: kongsky / freedigitalphotos.net

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7 thoughts on “Allowance: How To Teach Your Children To Save Their Money

  1. Awesome plan, Liv!! We are just now starting with an allowance for DD1 🙂 So far, so good, I even took a picture of her spending her very first allowance money–and you know what she wanted? Poke (pronounced poh – kay, a type of sashimi made local style were we live), a flashlight, and hand sanitizer. Loved her choices!!! 🙂 Good luck with yours and great ideas to apply for our situation!! <3

    • Live by Surprise Live by Surprise says:

      Wow – those are different choices than the usual candy and plastic crap my kids pick. That’s fantastic Jane! Good luck! Sometimes I think it’s more work for the parent s.

  2. Wow, what an awesome plan, Liv. I did that (more like the first plan) when my kids were around 11 and 13 for a few years. It fell apart eventually as you say, the shared custody and their schedules didn’t allow for the consistency required to make it work. My son is a saver and my daughter a spender. Always has been that way since young childhood. Is it genetic or learned? I’m not sure but I still try to help my daughter with budgeting and she’s almost 23. So, to be honest, I wasn’t the best budgeter until my divorce. Kudos to you for your new allowance plan. Your kids will learn a ton of monetary lessons.

  3. Total genius! I love this so much I pinned it so I can remember this when the kids get older. I wish I had done this with my kids because there are so many levels of learning to it. It’s fabulous! I can’t wait to hear about it as you go along. What we did was a little different but it did seem to work pretty well for our situation. They are both completely financially independent and have been since they turned 18. My husband and I had a tree trimming/lawncare business for 17 years until the recession hit and I got sick. We always provided the basics and lots of love but any extras they had to work and pay for themselves. There was always work that could be done so we all stayed busy. When they started driving they were put on our cell phone (which weren’t like they are today this is early 2000). They had to work and pay their portion of the bill and they had to pay their portion of the insurance to be able to drive. We did provide them with their first cars, but they had to buy the gas, insurance and phone to be able to have them. Housekeeping was mandatory we all lived there we all took care of it. My daughter even took it farther and was buying her own school clothes. He went into the service at 18 and daughter went to college. Now they are both going at the same time. He’s going on the GI bill and she is paying for her own. I do babysit for my daughter of course for free so there is that but that’s because I’m so over protective of them.

    • Live by Surprise Live by Surprise says:

      I’m sure babysitting is its own reward. They’re getting sooooo big!

      And yes…hopefully it works out. We’re putting our best foot forward anyway!

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