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Paying Your Child? Here are Six Ways to do it

August 14, 2010
46 Comments

How do you pay your child allowance? Do you have a system? Do you make the kid work? It’s time to start teaching my five year old about how money works, so the inquiry is in many of my conversations. I’ve heard good ideas and crazy ideas, and those that are well meaning but that propagate the very credit mess the world is in now. Here are a few tips I’ve compiled from the journey. If you have your own, please add them to the comments!

1. Free Money Sets Up Future Disaster
A friend of mine has a generous allowance system for her six year-old: he does chores that add up to certain sums, and at the end of the week, she matches what he earned dollar for dollar. Rewarding system, yes. But that method alarms me. Young kids are “wanters.” They want, mommy and daddy provide, want fulfilled. If children learn from the start that “earned income” equals “work” plus “free money,” they develop the credit card experience: “I want” plus “I can get free money for not doing anything,” and then, “Oh look, I used my credit card, so they are giving me even more money now to do and get what I want.”

2. Chores Pay
When you tie the allowance to chores, your child gets to experience the reward of working for something and getting it. Rather than offering a set amount per week, make a list of which chores earn what amount–i.e., sweep the porch = $1, wash mom’s car = $5, etc. This will help them to develop a financial goal and work toward it. If they want a new toy or to save vacation money for souvenirs for friends, they can calculate how many chores, and which ones, they can complete to meet their goal.

3. Income Covers Expenses
My parents have a letter I wrote them when I was “13-and-three-quarters years-old.” It was a pitch titled “Erin’s Expenses and Life Story.” I wanted $52 a month, an increase in my allowance at the time, because my parents system included me paying for my own expenses–things like clothing, shampoo and conditioner, teenage incidentals. I had to learn to balance my own income and outflow. If I wanted a new sweater, I wouldn’t be able to buy the shampoo and conditioner I liked. At 13 & 3/4, I discerned that I needed more to handle my expenses and itemized my proof. This method is great for older children. An incrementally increasing responsibility can be a really great element to add to a child’s allowance as he or she gets older, and begins to get a sense of what the world costs to live in it.

4. Saving Is Cool
Six to ten year-olds are not going to be buying their own shampoo. But they can learn to save the moment they start earning allowance. Teach them the practice of putting ten cents of every dollar they earn every week into a piggy bank. When they do, they get to see what is left over of their earnings (subtly training their early experience to income after expenses). They also get the joy of watching their savings grow, and to begin to understand the association of money to income isn’t solely: “I want,” thus, “I get money,” then, “I spend money.” But, rather, they learn, “I work, so I get money for trade, and part of the system is putting money into my savings account.”

5. Money Is Outside Me
Allowance can teach about so much more than just money. It can offer children the opportunity to evolve their “I-want” into a community experience. If your children are too young to work around the house to earn an allowance, consider the jar system to teach the flow of money. Label them as “Savings,” “Fun,” “Gifts for friends + Charity.” Two of these jars are directing their money outside themselves. Rather than receiving money and spending it all on their immediate desires, kids get to see how their money affects their community. Let a child choose the amount he or she puts in each jar each week, and watch the amounts shift over time, as her awareness expands.

6. Charity Feels Good
Teach your kids the intrinsic joy of what it feels like to give money away. When their charity jar is full, take them to a local mission and let them hand it to their recipient. Let them experience that moment, and ask them about it. Do they say, “I loved giving that money to a homeless family. Next time I want to give even more”? Do they find other charity interests that started from the experience of the first one? Getting kids actively saving for charity teaches them concepts of sharing, community, and lets them feel the impact their generosity–and their earning power–has on those around them.

Erin Lozano is co-founder and COO of GreenSherpa and is dedicated to inspiring women to live and spend authentically.

46 Comments

Great post! My parents did an excellent job of teaching both my brother and I the value of money, and the wise handling of it, as kids. It made so that when we were new out on our own we were able to not only make ends meet when incomes were low but put money away when things were good.

The way allowance works around here, is that our girls are expected to do certain chores around our house...

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My son is 8 and doesn't receive an allowance (yet). We believe that it is part of his right and priviledge of living at our home to do things like... making his bed, cleaning off the table, unloading the dishwasher. Mom and dad don't get paid for doing those things so why should he?

But... I am a WAHM and I have my office in my home...

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Wonderful post! Using an allowance to put your kids in charge of some of their own expenses is a great way to build financial skills and responsibility. I wanted to let you know that we've developed an online application at www.familymint.com that lets your kids manage and track their own money online while you as a parent hold the money and act as the "bank"...

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Thanks for this post! We have an 8 year old and she is already starting to ask for money for the things she helps around the house with. My husband and I were trying to come up with a good way to teach her about earning money and saving money. We're going to consider some of your ideas.

I really worry about an allowance tied to regular chores, this is a part of living in a family. Mom doesn't get paid for fixing dinner, dad doesn't get paid for fixing a faucet, why should a child be paid for doing the dishes. Now, if s/he mows the lawn, which was Dad's job, then Dad can pay him for it. Washing the car, cleaning out the garage/basement/etc. that is above and beyond...

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LOVE this post! Since schools don't have time to teach money lessons, the responsibility is up to parents. The current economic time is a perfect example of the upside of living within ones means. Kids who understand this because of good parental guidance are going to find themselve secure in their futures. It's never to early to start teaching the concept of self sustenance.

Great article! It is never too early to start teaching financial responsibility. When my daughter turned 3, we bought her a bank with three sections: spend, save, and share. Every Sunday, she gets three quarters and puts one in each section. We also got her a magnet board, and every day that she gets all of her magnets, she gets a bonus quarter. Once she gets good at everything on the board (No hitting, Listen to Mom & Dad, Clean Up Toys) we can add new skills or chores for her to work on...

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We give a small allowance (our kids are 9 and 12) that is used for fun, gifts, and charity. It is not tied to chores. Doing chores is part of functioning in a household. Giving an allowance is part of my responsibility to help them learn to manage money. I don't withhold it unless they have been wasteful with household $, like leaving lights on or the fridge open, etc.

There are some adults that need to follow this six ways to earn, save and use the money...

All great posts, thanks! I also wanted to add that I read that Suze Orman, the great financial guru, suggests if you want to motivate your children to put money into their savings accounts, that you could suggest matching dollar for dollar the amount they put into that account.

I really like your article and the points. I would like to hear what you or others think about distinguishing what is exepcted as being a part of a family versus what you get paid for. Also what would you pay a 7 year old versus a 10 and up child.
Thanks,

I have to disagree on most points with this writer! Chores in my house are definitely not tied to allowances, as my kids are part of the family and have to contribute as such. I can't tolerate 'i will do this task if you pay me' attitude. I mean has the writer actually implemented what they advocate? How do you wrest money away from a 7 year old to give to a charity. Kids have to 'own' their belongings before they can share...

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I don't think that this article is very thorough or well organized. You are missing some major common practices, such as expecting children to do chores because they are part of the family and then paying them a set amount of allowance each week because they are a part of the family so that they can pay for their "extra wants"...

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Info is absolutely essential to wisely helping kids to manage their money/resources!
The Economy is in a stalemate position and may be so for the majority of some of the developing years of the youngsters. It is So-o-o Necessary for the kids to have hands on experiences with the decisions and use of $ .Their families are required to navigate a balanced LIFE around a BUDGET!

At our house we use a ticket system. There is a list of jobs, above and beyond the usual make the bed, etc. If a job on the list is done without a parental request, it earns 4 tickets. If I ask once, 'could you feed the dogs please?' and the job is done on first request, it earns 3 tickets, 2 if asked twice. Extra big jobs like helping with gardening, etc. can earn as much as 10 tickets. Some things in our house cost tickets. 30 min of media, tv or wii, cost 5 tickets per time...

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