May I ask you a question? Oh wait… That was a question…
Do you give your children an allowance?
We just started, and I thought I would share what we’re doing in an article to get some feedback and ideas from everyone. Our kids are eight and five, so they understand a little bit about money and their just learning that it takes money to get things.
The first thing that Kristine and I discussed was, Do we make them work for the money or not? Eventually what we came up with was more along the lines of: If you’ve been good (this can include doing chores) you will receive an allowance for the week. It is entirely up to us, and either parent can choose to withhold a weekly allowance for any reason.
Once the ground rules were established we needed to come up with an amount. We decided to simply give them one dollar for each year old they are. This was mostly for ease and a simple way to remember.
Now we dug into what I consider the most important part… We designed some simple deductions that would teach them about real life. I chose to use three straight forward and simple deductions: TAXES, SAVINGS, and CHARITY/TITHING. I know we could have said, Roth IRA, 401K, health insurance, FICA, 503b, and so on and so forth… Alas, we want to make this easy and enjoyable. We also want it to be a learning experience. So, we stuck with three main deductions
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Next, we created easy percentages for each deduction to explain how percentages work. So we came up with:
TAXES = 20%
SAVINGS = 10%
CHARITY/TITHING = 10%
In this way, we can easily and quickly calculate what they owe.
During our first “payday” the kids were enthralled and thrilled to learn. Mostly I think they wanted to get their grubby little fingers around some cold hard cash!
I showed each of them what their gross pay (whole amount prior to deductions) was. $8 and $5. Then I explained deducting taxes by saying, “This is what we have to pay the man.” HA! In all seriousness, I explained that our military, police force, firemen, roads, and agencies need funding to exist. After pulling that out, we talked about what savings was and we deducted that. Finally, I explained charity and tithing and the importance of giving back to the community and helping others. The kids were excited and took it all in.
Once all of that was done, I explained what net pay (take home after deductions) was and handed them each their allowance. $4.80 and $3. This actually hit home with me when I saw how much of a chunk was missing.
It was fun for the whole family, and we can’t wait to continue with this.
By the way, Kristine and I are keeping track of their taxes, savings, and charity/tithing… Our plan is to give them a lump sum (approximately $2000) of this “savings” on their sixteenth birthday. This will be our final financial lesson; which is that saving money REALLY pays off!!!
What do you guys do (or plan to do)?
See you next time,
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Great idea, Vaughn . . . kids that learn the value of saving young enough will be rewarded, many times over, when they are adults!
Thanks, Dan. That’s really why we do it. My parents did not do much money talk with us, and I really wasn’t good with money as a young adult. Heck, I struggle with it now. I want to try and build good habits and knowledge for them at an early age.
Our family did something similar. However, we chose to have the boys put 50% into savings every week. We didn’t save it for them, we took them to the bank and opened savings accounts. We also requested that they put half of all monetary gifts received into savings. They learned to “live on” half of what they were paid. As teenagers they had healthy savings accounts and didn’t miss a thing. They enjoyed watching their savings accounts grow (and continue to do so!) Saving is a lifelong habit that needs to start early.
I love the idea of teaching them to live on a portion of their allowance (pay). It is soooo important to understand. And, a fairly simple concept.
Thanks for sharing!
Wow, quite the operation you planned out. We give pocket money to Landon only and started when he was 5. He gets $2.00 a week for now. He can only spend half of his money, the rest goes to saving. While we don’t charge taxes or for charitable causes (we have them give away gifts on Christmas that they would like on their Santa list, participate in food drives etc. to teach the value of giving back), I too believe it’s critical to help them learn that you can’t/shouldn’t spend more money than you actually have. When you put away money as you get it, it’s like you are not missing it, therefore a nice surprise when you have to hit that savings account.
Excellent advice, Sibylle. I agree with the “don’t spend money you don’t have” thought. Unfortunately, the credit card companies approach our children on college campuses and promise them “free money.” It is a great idea to teach this up front.
I think your deductions are brilliant! I had never considered that as not only a reality for them regarding money they earn, but as a way to teach what those things are for. I think I’m going to adopt this technique.
Also, if you want a bit of a concrete way for your kids to keep track of what they do to earn their allowance, we started using ChoreMonster (http://www.facebook.com/choremonster). They have a fun online interface and an app if you use the iPhone (we’re a droid family, so no app for us yet). Evan loves going in and checking off the things he has done, and once he does it sends an email to the parent to approve that its been completed. Its worth checking out.
Thanks for the kind comment/compliment, Sara. And, thank you for the tip on ChoreMonster… That looks very COo.oOL!
Isaiah gets 25 cents for every year old he is – so $1.75 right now. He’s not allowed to spend it all and can extra doing extra chores. When we go to temple he has to give some to tzedukah (charity). When he wants to spend some we discuss on what and if its the best option for his money or if he should save it for something he wants more. On Dec 31 whatever is in the piggy bank has to go in the real bank. It seems to work
Nice! I love the extra dough for extra work. Excellent idea!
Fantastic! I love this and will bookmark it for one day when there’s a little Jeffrey Jr running around. I love that you’re charging them taxes! Hilarious!
Thanks, Jeff! I can’t wait to see a little Jeff running around!
Thank you so much, Shaneeka! I’m glad you dig it!
Love this! Going to fwd this to my daughter along with little Frank’s first “paycheck”!
Cool! Thanks for chiming-in, Janice! I hope you had a fantastic New Year’s Eve!