We have written a few excellent articles (if I do say so myself) on the topic of raising kids and teaching them about money. Definitely check this out if you missed it the first time: Parenting With Wealth – 5 Things To Never Tell Your Kids.
Now, New York Times columnist Ron Lieber has written a book called The Opposite of Spoiled, which reinforces many of the recommendations in our previous articles and adds a few more. Lieber makes the case that raising kids to be responsible with money also teaches them other critical values, such as modesty, patience, curiosity, perseverance, and generosity. In fact, the spending decisions that your kids witness each day are teachable moments: needs vs. wants, planning vs. impulse, current need vs. future needs. Teaching your children how to be responsible with money could prevent your children from becoming boomerang kids, like many young adults are in this day and age.
Should an allowance be tied to chores?
Modeling good behavior is important, but parents also need to give children the opportunity to make their own spending decisions (and mistakes) with their own money. The ultimate tool for teaching kids about money is an allowance. Lieber, like myself, believes that allowances should not be tied to chores. Doing jobs around the house is important, but they should be done just for being a member of the family, not because you are getting paid. Parents can reward or punish based on how well chores are done using privileges such as computer/TV time, access to certain toys, etc. Taking away an allowance denies the teachable moments that the allowance affords. Some people (such as Dave Ramsey) disagree and feel that you need to teach that money comes from working. I could agree with that, but I think that adding the work requirement can wait until age 12 or 13. I would also add that I believe that and the “work” should be above and beyond basic household chores, which should be required for being a member of the family.
Use an “Allowance Agreement”
The hardest part about starting an allowance program is…getting started. Most people want to get it right and don’t know how much to give. I recently started an allowance program with my kids (ages 5, 7 & 9) presented them with an “allowance-agreement,” which each of them happily signed. I love the Allowance Agreement because it makes the expectations very clear (see example at end of this article). I posted the signed agreement in each of his kids’ closets and put the three envelopes (Save, Spend, Donate) on a shelf right under the agreement.
Teaching values by giving back:
One thing that surprised me was how excited my kids were about donating a portion of their allowance. They read about different charities on Charity Navigator and debate whether to help homeless people or stray dogs. Another teachable moment occurred just last week when a family friend sent an email asking for support for St. Jude’s Children’s hospital. St. Jude’s saved his nephew’s life. Conor’s Miraculous Story simultaneously inspired them and brought tears to their eyes. Each of my kids donated all that they had in the “Donate” envelopes to support our family friend and St. Jude’s. The animal shelters and soup kitchens will have to wait until next quarter when they have another $24.
Final Thought: Raising kids around money is not difficult, but it does take a bit of thought and effort. It will teach them independent thinking and decision making. So, take the first step now. I think you can start an allowance program when a child is as young as five years old.
My wish for all of you is that your children and grandchildren grow up to be…the opposite of spoiled.
SAMPLE ALLOWANCE AGREEMENT
I understand that I am receiving a weekly allowance as a gift from my parents to teach me how to handle money responsibly and make good financial decisions.
My weekly allowance will begin at $12 per week. As I get older and show that I am responsible with money, I hope to receive a larger allowance so that I can make bigger financial decisions.
I agree to save at least $5 per week for big future purchases (over $100) such as a computer, or a new bike.
I agree to save at least $2 per week that I will put aside to donate to charities in order to help people who are less fortunate than us. I will select one charity every 3 months to donate these funds.
I will have up to $5 per week that I can spend on anything I like. This will include: toys, stickers, stuffed animals, jewelry, souvenirs, gifts and/or treats.
I understand that this allowance program can be changed or ended anytime if I am not following the guidelines above.
Signed by _____________________________________________________________