I accidentally found myself watching one of those wife swapping shows (which honestly sounds like something that shouldn’t be on TV) the other day and the parents were debating allowances. Half the time the parents are focused on the dollar amount a kid receives.
“$10!!!??? When I was a kid I got a quarter!”
“$20 is way too much, but $10 is too little”
“$50, and they didn’t even do anything”
These aren’t direct quotes, but they do sum up what most parents mistakenly focus on when the topic of allowance comes up. What the correct amount is doesn’t matter at all. Depending on your own income level $10 might be too much, or $100 might be too little. It’s what is appropriate for your lifestyle. The same goes for increments, weekly, monthly, etc. Not important.
The allowance doesn’t exist to give kids spending money. If that were the case you’d just give them money when they asked for it. The allowance exists to teach children some level of understanding about money. At it’s most basic level, a monthly allowance teaches a child to save, appreciate patience, and learn there is a limited flow of money. But the allowance can teach so much more. Here’s how:
First and foremost, everything in the allowance system must be formalized. It doesn’t have to be written out in a contract or anything, just make the allowance system formal. Do some tracking, make “pay-day” a specific time and place so there is consistency. Keep documents in a notebook or spreadsheet. This is the most vital part of the system because it conveys the importance of the transaction. As children get older this formalized system will become less important, but by then the foundation should already be in place.
Next, don’t just give your kids an allowance. Make them earn it in some way. My parents made me keep my room clean. So, once a month I cleaned my room. You can be as strict or lenient as you want, so long as they do something for their allowance. On top of this, give your kids the option to earn more money around the house. Mow the grass, clean the dishes, get the paper, I don’t care. Just give them opportunities to earn more cash. These two things help your child understand that work must be completed and that money is earned.
Now for the nitty gritty stuff. As I said before, the amount you give doesn’t really matter, whatever you think is appropriate. What is important is that you empower your child to make their own decisions. You empower a child just like you empower a dog (sorry), using a reward system. Getting your child to save is difficult. The instant gratification that comes from making a purchase today far outweighs the puny interest rate they would get in a savings account. Even the 10-12% they would get in the stock market won’t work. Offer to double anything they save (up to a certain % maybe). Stipulate that it must be saved for 6 months, but go ahead and give them the money up front (more money = instant gratification). They are then able to decide how much they would like to spend now and how much they’d like to save. If you’re worried about paying out too much money, just decide their allowance is X dollars and give them 0.5X as their “allowance”.
I do not pay my kids an allowance. My kids are on a commission schedule. They have a list of chores required of them daily for which they earn a small amount, and they have the option of completing a few extra chores for additional commissions. At the end of the week we add up the totals for each chore completed and they collect a commission payment.
Allowance vs. Commissions
I don’t like the word “allowance.” It looks too much like receiving money whether you work for it or not. I personally do not believe this helps to prepare kids for the real world where they are expected to get out there and earn a living. So around the frugal family household you actually have to work to get paid (novel approach, isn’t it?). The various daily chores are age-appropriate and do not require a great deal of time to complete. We also include some larger chores for the kids to pick from in order to earn a little extra money. These larger chores are optional, but provide our kids the opportunity to stretch to earn more money.
Sample Commission Schedule
Here is a snapshot of the commission schedule for my daughter. Notice the daily chores which pay $0.05 each are things you would expect an 8-10 year-old to do anyway. The $0.05 is really just my way of encouraging her to get in the routine of completing these tasks every day. By rewarding her with a nickel for making her bed I get better results than fussing about a messy bed later in the day.
The “Extra-Credit Chores” range from $0.10 to $0.50 depending on their degree of difficulty. My daughter loves to work this section (so much so that I’ve had to renegotiate the costs to keep from going broke) when she has a savings goal in mind. If a new CD or DVD is due out that she really wants we suddenly find her wanting to vacuum, dust the furniture, etc. every single day! We try to encourage her not to take it too far, but it is hard not to be impressed by her entrepreneurial spirit.
The “Bonus” section is reserved for any extra chores the kids may be asked to help with during the week. I have plans over the next couple weekends to add some wood stain to our privacy fence. Instead of buying or renting a paint sprayer, I plan to hand the kids a paint brush and let them help. Tom Sawyer would be proud! I will pay them something like $0.25 a panel so they can easily tick off their earnings in their head.
Random Acts of Kindness
The “Act of Kindness” section is something Mom and Dad fill in when they witness the kids doing something nice for others. It could be as simple as holding a door open for a mom with a stroller, or as elaborate as volunteering some of their Saturday to help make crafts for a charity. The point is, we want our kids to be givers and we encourage them to find creative ways to be help others. They don’t receive a reward every time they perform a random act of kindness, because if they got paid for it each time it would change the spirit in which they perform the good deed.
My daughter loves to complete her commission schedule on a daily basis, and looks forward to weekend payments. To really make this tool effective you have to resist the urge to give kids “extra” money throughout the week, or buy them too many extras without requiring them to work and save.