Too Many Toys? Here’s How You Fix It

A reservation I know a lot of parents have about giving their child an allowance is, “Do we want more stuff coming into the house?” I feel you. Like you, I have stepped on more than enough pieces of lego, never to want to see those vile blocks again. But if we’re going to give our little ones the opportunities to manage their own money, then we also need to provide them with the opportunity to bring new things into the house.

But like with all responsibilities, some limits can be put into place. Here is how you are going to manage the new influx of stuff that is coming in – a toy equilibrium.

Establish a Toy Equilibrium

Do this before starting the allowance, or after a big toy purge. Establish that your house is now at its maximum amount of toys, the number of toys in the home can go down, but it can not go up. If a new toy is going to be coming into the house, that means a toy of equal size, or parts, or whatever criteria you deem fit for your home, needs to be removed.

Too many toysA toy equilibrium is an excellent way for your child to start prioritizing their belongings too. If they are really in need of that new transformer, Elsa, or whatever the latest thing is, then they should be willing to get rid of that other thing that has been collecting dust.

I, unfortunately, have passed along the hoarding gene to my son. I am a collector. Like me, my son does not like to get rid of anything. All trash could be a crafting item, all toys are special to him, and to give something away is always a great offence to him.  I can relate to that, but at the same time, we have limited space, and he has started to come to terms with that. It is still a fight to get rid of stuff. However, post-shopping, I do have him find items that he no longer uses to add to our give away pile, and so far, it has worked well.

Creating a Healthy Relationship with Stuff

With great power comes great responsibility. The ability to buy stuff means your little one needs to be responsible enough not to hoard things.  Saying goodbye to toys creates a healthy relationship between your child and things.  The ownership relationship is a critical part of money management.

Is it hard for you to say goodbye to stuff too?  When you do a toy purge, make sure your little one sees you purging some of your stuff also.  Model the behaviour we want, right?  Have you tried a toy equilibrium in your home?  How did it go?

Empower Your Kids With Financial Literacy

Who does most of the talking when you’re at your pediatrician’s office?  More and more data is coming out that advises parents to let their children lead during their doctor’s appointments.  By allowing your child to take a lead role in their health care, you are empowering them.  But why stop with health care?  You can empower your kids by giving them the space to question your spending too.

Question Authority

A generation or two ago, it was unheard of to question a doctor. Doctors would take offence to you questioning their authority. Some still do, but the medical field is starting to see the flaw in this approach. Many medical professionals now see that people need to take on a significant share of the responsibility for their health and well-being. And that can only happen if they feel empowered to find the information. And you can only do that if you can ask your doctor questions.

But empowerment isn’t just for your health and well-being. We need to incorporate that mindset into all facets of our lives. We have to remember what our ultimate goal is when we are raising children. It is often hard to remember that the purpose of parenting isn’t to get them to eat vegetables; it is to teach them about nutrition so that they can make healthy choices. It is not to administer medicine, it is to teach them about health and well-being so they can make the right choices, and feel comfortable asking a doctor question to ensure they stay healthy. And it is not to buy them the necessities. It is to teach them how to manage their resources.  So that they will one day be able to live and support themselves without our help.

Training Adults

We are not raising children. We are training adults. It is a slog, and it is almost impossible not to get bogged down by the hundreds of tasks, and requests, and assignments, and appointments. But all of those are just the tactics. They are not the objective.

If we do our jobs well, in the end, our children will leave us and go off to live fulfilling lives as adults. How they define fulfillment may differ from us, but our goal is to give them the skills necessary to define and achieve that fulfillment. Preparing them for adulthood is why it is essential to empower your kids, given them the tools they need to question authorities. Not to be contrary, but to be curious to seek knowledge from knowledgeable people, and then help them to apply it to better themselves.

Empower via Questions

Concerning finances, don’t feel like you are the only authority they can question. There are aunts and uncles, grandparents, and an assortment of skilled professionals in your networks. Make sure you expose them to those trusted advisors. Build those relationships so that they can have a full breadth of information to empower them for what awaits them.

Protect Your Kids Financial Mental Health

Financial literacy is starting to become a focal point in schools. For that, I’m very thankful.  While I believe introducing financial concepts to students earlier would be more beneficial, I’m grateful for the progress we have seen.  But before you think that we can leave your child’s financial education solely to our schools, think again.  Doing so could leave your child’s money mental health in jeopardy.

Financial Mental Health

I’m confident schools will do well discussing the hard facts about personal finance. What is an asset, what is credit, and what is debt? But financial literacy is more than just definitions.  There are a lot of emotions wrapped up in how we use our money.  That is why you need to be involved in teaching financial literacy.

You know your child better than anyone, and I believe you are a better advisor when it comes to your child’s emotional well-being. So while in the classroom your child will get to understand some of the nitty-gritty of finance, you can be there to discuss:

*     How you feel when you buy something
*     How you feel when your savings account is at zero
*     How you feel when you give to charity
*     How you feel when you get paid for work well done

Feelings Drive Actions

I am a big basketball fan, and I live in Toronto.  So when Toronto was in the NBA finals, it was a big deal for me. Over two weeks, I gained ten pounds. Why? I was stress eating. All the tension of the series had me overeating. I’ve known I stress-eat for a while. When I’m down, I reach for sugar and crave comfort foods. There are feelings tied to the way I eat. The same is true for the way I spend and save.

Think back to the last purchase you made for yourself. How did that make you feel? Did you get a little high off of the transaction?  That euphoric feeling can become addictive, and drive our behaviour, just like my stress drove me to overeat.

Whether retail therapy is good or bad depends on you.  But the only way to answer that question is to understand how you feel since your feelings drive actions. I  know what my triggers are for stress eating—knowing that, I can choose how to manage it.  The same is true for the emotions that drive our financial behaviours, like saving, spending or giving.

Talk About Their Feelings

There is a lot of feelings that go into what we do with our money. When we have something in our lives that is not right, we may seek out a councillor to help us deal with our feelings. The hope is that by identifying our emotions and our triggers, we can change how we react. I want parents and guardians to be our children’s first financial councillors. Parents can help children work out the complicated feelings they may have around managing money. As much as I know teachers are there for our kids to talk to, they change year over year. And with counselling, sometimes what you need is consistency.

So don’t be afraid to ask your children how they felt when they had to pay back a loan, or when they finally were able to save up and buy that big-ticket item. Getting them to acknowledge their emotions will better enable them to have healthy financial mental health habits and give them the tools to deal with those complex emotions on their own.

Piggy Banks – Why You Need To Toss Them Immediately

How many of your kids use piggy banks?  Ok now think about your family budget.  Do you just toss all of your money into one account, or do you divide it into chequing, savings, retirement, investment, emergency funds? If we want to teach our kids how to segregate money into different accounts, we should help them, and we should help them early.

Stop Using Piggy Banks

I don’t know the historical origins of a piggy bank. But regardless of where they came from, I don’t see how pigs have anything to do with money, and I think piggy banks are a terrible way to have kids store their money.

First off, you can’t put in bills easily, and if you are Canadian, some coins won’t fit either. Once the money is in, you have no idea how much you have. Which one of you would keep your money in a bank if you couldn’t see the balance? Then either the bottom comes out too easily, and money rains down on you, or the hole in the base is too small, and you can’t get anything out.

Bad at deposits, balances and withdrawals? Banking shouldn’t be this hard! Toss those piggy banks out!

A big part of money management is compartmentalizing the money you have. I’m sure you do this all the time. I have a paycheck coming, part of it will go to rent, some to groceries, and some to entertainment.

That compartmentalizing is easy for us because we have had practice. But even with practice, we still like to put up barriers to the different compartments. This is why we have savings chequing and retirement accounts.

We need to do this because money is money. The money in my savings account is the same as the money in my retirement account. The only way to distinguish them is to set up some compartment, or in this case, accounts to separate the two. In economic terms, they call this fungibility.

So why are we not doing this with our kids?

A Better Way for Your Kids To Keep Their Money

What is the simplest way to delineate money for different purposes? Put it in different places.

When I started my son’s allowance, I found three clear jars with wide openings and twist on lids.

We labelled each jar.
Save – this is equivalent to a savings account which he uses to save up for something special.
Spend – This is his chequing account for buying smaller things that come up
Give – This is his donation account that he uses to be philanthropic.

Why Clear Jars.
Deposits/Withdrawals – easy to open and put money in or take cash out
Balance – easy to see your wealth increase and decrease at a glance

By keeping his money in three jars, he is building the habit of budgeting and accounting. By using clear jars, he can keep a tally of what he has. It is not hard for him to get a statement of his accounts with a glance. And by making the jars easy to open and access, it makes his money easy to access. The idea of having to find a hammer to access your money might sound like a wise saving strategy to some, but trust me,  it is not.

I love the three jar method. I think it is simplicity at its finest. How better to teach accounting without having to teach accounting?

Toss those piggy banks and let me know if you have tried this method and how it is going for you.

Are We Rich? What to Say When Your Kids Ask

Hey Mom, are we rich?  Has your child asked you this question, or it’s opposite, “Are we poor?”. We have and it is a doozy.  Here is how you can deal with this question when you get it.

Let me start by repeating something I’ve said a few times. I’m very fortunate. I grew up with all my needs met, and I currently do the same for my children. I acknowledge that much of that privilege came from the luck of the timing and place of my birth. Had I been born somewhere else, or at some other time, I would not have had all the opportunities that I did. I also acknowledge that I have worked for what I have.  But just the fact that I was able to be educated, to be in a position to work, makes me one of the lucky ones in this world. So with all that said, yes we are rich.

Us vs The World

If we compare our situation to the vast majority of the people in the world, we would have to acknowledge that we are rich. Are We Rich Vs the WorldThe majority of the world makes much less per person than that of my family and me. And that is true for most of the people in my community. I have to believe that would also be true for most of the people reading this. According to where most of my readers are based, and those countries average income per/capital. Which means by those standards, we are very well off.

Us vs The Neighbourhood

But let’s be honest, when our children ask are we rich or poor questions they are not comparing us to households around the world.  They are Are We Rich vs neighbourhoodcomparing themselves to their friends down the street. They want to know how their family stacks up compared to the friend with a new pair of Jordans on, or a Nintendo Switch. Are we rich compared to those families?

I think this comparison starts early.  Our kids are not much different than us. I won’t pretend that I don’t look at clothing, cars, and other items and try to estimate where I fit economically compared to my peers. I like to believe that I don’t, but I would be lying if I said I didn’t. But with age and a bit of wisdom, I think that whatever mental calculus I do when I see those items I still treat the people I meet the same way regardless. It may be hard for me to stop doing mental math, but it has always been easy for me to treat people as people, I thank my parents for that.

What’s the  Answer?

If this question comes up, and I am positive it will come at some point, I would suggest you avoid diving deep into your pay stubs and tax returns. Start by asking a simple, “Why do you ask?”.  In addition to buying yourself some time to formulate an answer, it will also give you a chance to address what is at the root of your child’s question. Maybe they are comparing what they have versus what other’s don’t or perhaps it is something altogether different.  First, try to get to the cause of the question before you dive in.

Regardless of where your child is coming from with the question, I would suggest you work on defining the terms “Rich” vs “Poor.”  In our family being rich is as having enough money to cover all the needs of your family.  This is a great time to identify needs vs wants if you haven’t already done so. If you have all your needs covered and you have money left over to buy your wants I consider that rich. Poor, on the contrary, is when you do not have enough money to cover all of your needs.

Definitions Matter

With that simple definition, it is easy to understand why we can feel poor while we are some of the wealthiest people in the world.  If we start to believe that having the newest smart-phone is a need, but we can not afford it, then we will feel inferior.   Similarly, people with very little can feel wealthy if they want for little.  I don’t want to stray into the ills of consumerism, but if you get into this discussion, you can easily segway into how wanting more can make you feel bad.

It is easy to grasp the “keeping up with the Jone’s” effect.  The more we see others have, the more we want, the more we want, the less we feel like we have.    To counteract this effect, we practice gratitude.  I think it is essential to fight against the endless want so that we can appreciate what we have.   

Be Honest

If this question arises for you.  Be honest about your situation.  Provide your children with both comfort and clarity. Let them know that you, as their parent, will do everything in your power to supply them with all the needs that they have.

If this question arises out of wanting for more stuff let them know that not getting all of their wants met, right when they want them is a good thing too.  Remind them how much more valuable items feel when they have to save.  Remind them how fortunate they are.

“Are we rich/poor?” is not an easy question to answer, but answer honestly for your situation, and you will be fine.  Let me know what you have said to your little ones when this question has come up.

 

 

Teaching Financial Literacy – The One Thing You Need To Know

I hear you out there. “Teaching financial literacy is a drag.” And it can be. If you are like most, you are probably thinking about being in a classroom with a teacher droning on. Or maybe when you hear the word “teaching,” you have flashbacks of notebooks, textbooks, and tests.

While all of those can be part of the learning process, they are far from the only ways we can teach. I would argue they are not all that effective when it comes to teaching financial literacy. Especially not for your children.

There are lots of ways to teach, but the method I want you to focus on is storytelling. If you have spent any time on my site, you have seen some of my stories. From outsourcing my paper route to plunging myself into credit debt, I have endless stories to share about managing and mismanaging my finances. I tell my stories to show you where I went wrong and also to show how I got back on the right track. I hope that it is easy for you to see yourself in my stories of using my credit cards to finance nights out. Or stories about not sticking to a budget when I knew I had no more money coming in and endless bills that didn’t ever stop.

Share Your Stories

While I hope my stories resonate with you, what I want you to do is to find and tell stories to your kids. Your stories will resonate with them. We all have our stories of financial triumphs and pitfalls. Not one of us has done everything just right.

Kids love stories of triumphs. They love to hear how David slew Goliath, or how Jack chopped down the bean stock. But to be able to give them the story of winning, we need to share the parts about our falls, our missteps, dare I say our failures because it is from failing that we learn the most.

So share those stories and don’t sugar coat it. Give them all the details about overdrafts, debt collectors, or repossessions. Please give them the tales about being laid off, downsized or being deemed surplus. We all get knocked down. But we are all still standing. Why? Because we all got back up. Show your kids how you are a fighter and that you have learned from your missteps.

Let them see that you are contributing to a retirement fund because you don’t have a pension. Let our kids know that you are maintaining a rainy day fund because you were fired before. Help your kids understand why you won’t buy them that toy, because it is not in your budget, and your budget it what makes sure that the bills are paid at the end of the month, and keeps you out of debt.

It is those stories that will resonate with your kids in ways that textbooks never could.

The Ultimate Guide to Giving Kids Allowances

The Ultimate Guide to Giving Kids Allowances

Starting an allowance can be daunting. 

 How much do you give, how often, what do you let them buy?

 If you’ve been searching for answers, you have probably seen a lot of conflicting information out there.

 In this in-depth article, you’ll learn not only why you should start giving an allowance, but the best practices  for all ages.

Contents

CHAPTER 1:

Should Kids Get an Allowance?

If you are looking for a reason to start giving an allowance, look no further than the latest headlines.

  • Outstanding student loan debt reached an all-time high of $1.41 trillion in 2019.
  • 75 percent of Americans are winging it when it comes to their financial future      
  • Year over year, money is the number 1 cause of stress among Americans

    More debt, less planning, and more stress.  All of these headlines are due to a growing lack of financial literacy.  Financial literacy is just a fancy way to say an understanding of how to make informed financial decisions

Should Kids Get an Allowance?

Poor financial literacy skills lead to people of all ages spending more on fees, saving less, and in general, making financially poor decisions.  On the opposite side of that coin, in addition to having higher savings rates, and paying less in fees, 87% of Americans agree that ”nothing makes them happier or more confident than feeling like their finances are in order.”

What do any of those stats have to do with an allowance?  Experts believe that “allowances are powerful tools” to teach the basics of financial literacy to children.  They note that allowances provide your children with hands-on opportunities to make choices that will directly impact their financial knowledge.

That leads to the obvious question of how effective are allowances at teaching the skills required to manage money. With all the fuss over allowances, you would think that question would be an open and shut case.  But surprisingly, there has been very little hard research to back allowances as a successful means of cementing financial principals into our young ones’ minds. Denise Cummins, Ph.D. and author of Good Thinking, The Historical Foundations of Cognitive Science, and Evolution of Mind combed through the literature for an article in  PsychologyToday.com. She was only able to find one   of purport published 1991 that demonstrated that “receiving an allowance did impact children’s financial responsibility.”

She was only able to find one study of purport published 1991 that demonstrated that 

… children who get allowances are more sophisticated about money than those who do not.

Even with the lack of scientific evidence, we can use common sense and analogies to make a case for allowances.  Managing money is complicated.  It requires not just basic arithmetic, but also psychological discipline.  The ability to delay gratification, manage the feelings of both being better off than some, while also having less than others, all while balancing your wants against your needs.  And that doesn’t even start to include the nitty-gritty of managing debt, investing, budgeting and all the other aspects of money management.

How do we teach complex tasks to children?  Do we show them a piano and expect grand performances?  Do we provide them with a car and expect them to know how to drive?  Of course not. When your child first starts to learn to drive, they begin with the theory.  But that is not enough to get behind the wheel.  They need you sitting beside them.  You are there to coach them.   You start in a safe place, like a parking lot at first. Eventually, you begin to take some side streets, increasing the complexity bit by bit.  Once they have shown their competence, they are ready for the main event, major main roads and highways.

Giving an allowance is very similar.  You start with small amounts of cash; that is their parking lot.  It is a safe, confined space to make mistakes.  You are right there beside them, ready to coach them.  They are still holding the wheel, making financial decisions, but poor judgment now will not cause their credit to tank or creditors to start calling.  As they demonstrate more competencies, you increase their responsibilities.  Soon they will be managing a budget of their own.  But only after they have shown mastery of the necessary skills. 

An allowance is a powerful tool when used correctly.  But giving an allowance alone is not sufficient to teach financial literacy.  Your kids need you sitting beside them to coach them. For example, a 2019 survey conducted by the American Institute of Certified Public Accountants showed that while the vast majority of parents, 92 percent, agreed it is “very important for their child to understand how to effectively manage their money,” only 3 percent of children are saving a portion of their allowance.  Also, little more than 3 in 10 (32 percent) parents are teaching their children about money monthly or less, that is including 7 percent that never talks to their kids about money”.  Those percentages demonstrate an unfortunate lack of engagement on the part of parents.

The allowance plus your guidance is required if you hope to teach your kids life skills that they will need as an adult.  With the combination of allowance and coaching, there are no other tools that can make the same impact on a child’s financial literacy education.

CHAPTER 2

Allowance for Chores?

There is no bigger controversy when it comes to allowance giving.  “Should an Allowance be tied to Chores?”

The short answer is no.  If you want to know why ask yourself what the purpose of an allowance is.

As I noted above, allowances are a great tool to teach financial literacy to children.  But many people disagree that that should be the only goal. Some want to give allowances to teach work ethic.

The thinking goes; how else will my child learn the value of a dollar if I give them money for free?  They need to work for it, just like I do.

Here is the problem with this approach you are building a trap for yourself. 

Allowance for Chores?

The Pay for Chores Trap​

The trap that an allowance for chores creates occurs the moment your child decides they are willing to forgo their pay.  The tasks still need to get done, and you no longer have leverage. 

You have two options:

  1. You can force your child to work without compensation (which was fine before you started to pay them, but now they will claim it is forced labor, akin to slavery),
  2. You can let your child stop working, tasks around the house go undone, and there are no real ramifications to your child (you can’t fire your kids from your family)

Either way, once the trap is sprung, you are not teaching lessons about paid work or how to manage money. Lose-Lose.

While I get the sentiment behind this thinking, the logic is flawed, and the research bears this out.

The pay for chores argument while coached in work ethic is usually a cover for leverage. While you may think that tying an allowance to chores will provide you with the leverage you need to keep your child’s room clean, you may want to think twice.  The idea is that money will be the carrot to get the child doing their chores, and the withholding of the funds will be the stick. 

That goes against the current science on how best to motivate and sets up a terrible precedent.

A brief detour is needed to discuss intrinsic vs extrinsic motivation.

Intrinsic motivation: Curiosity, Challenge, Mastery
Extrinsic motivation: Money, Rewards, Praise

There is no better speaker on this topic than Motivation expert Daniel Pink, in his book Drive he hit the nail on the head when he said

“…if students get a prize for reading three books, many won’t pick up a fourth, let alone embark on a lifetime of reading”

Extrinsic motivation limits creativity, enthusiasm and dedication.
Intrinsic motivation, on the other hand, can fuel internal drive, mastery and ingenuity.

That is not to say that extrinsic motivation doesn’t have its place.  There is a lot of evidence to show charting with rewards can be an effective means of short-term motivation to build good habits.  But do not create an allowance chart for kids. If you are hoping that the use or absence of money will keep your kids in-line doing their chores, you may find yourself in the Pay for Chores Trap.

I know trying to create an intrinsic motivation to finish homework can be a challenge that even I don’t have a solution to, I have to concede that it is the better method for developing well-adjusted adults.

You cannot be a parent and a boss.  If you are trying to teach work ethic, help find your child summer or afterschool jobs.  A real boss will ensure your child understands work ethic.

Money as a motivator only goes so far.  On the contrary, it may harm your attempts to build a strong work ethic.  Don’t fall into the Pay for Chores Trap. If you need to take something away for incomplete chores, take away a privilege. They should get their allowance regardless of the tasks they complete. The money they receive is their chance to practice only management.  Just as you would still have your child go to piano lessons if their room was a mess, allow them to practice handling money even if their socks are always on the floor.

Do not take away essential practice time, and don’t tie chores to allowances.

CHAPTER 3

What is the Appropriate Age to Start an Allowance​?

 The sooner you start, the better.  The more time you give your child an allowance, the more time you give them to learn as much as possible. Also

“The sooner they learn, the more likely it will stick when it matters most,”

says Eric Pucciarelli, the Vice President of oXYGen Financial.

 

What is the Appropriate Age to Start an Allowance?

When determining when your child should be given an allowance, consider these two factors: interest, and ability.

If a child is showing an interest in money or as Kristan Leatherman coauthor of Millionaire Babies or Bankrupt Brats? puts it,

“The best time is when your child begins to understand that money can buy him things he wants.”

Don’t forget, kids also need to be able to do some basic math.  Kimberly Palmer, the author of Smart Mom, Rich Mom believes you should start

“as soon as they grasp the concept [of money].”

The goal is to keep their interest and to hone their skills.  If the interest is there, but not the ability, keep them engaged by including them in financial discussions until they are ready to do the math required.

If they are not ready at age five, do not force the issue, wait until they can do the math required to handle money on their own. Keep in mind that dealing with coins involves an understanding of fractions.  But even without a full grasp of fractions, you can start the practice.  Usually, around seven years – Grade one, they have acquired the necessary arithmetic skills they will need.

If your 4-year-old is showing an interest in money and they can distinguish between the different dollar and coin dominations, then, by all means, start giving your little one an allowance.

Lastly, if you are reading this and you have a preteen or teenager, and you haven’t started an allowance, it is not too late!  Remember, an allowance is a safe place to practice money.  Getting some practice will always be preferred to no practice at all. 

CHAPTER 4

How Much Should Kids Get for Their Allowance?

You will have to determine what works best for your family.  

How much you give depends a lot on your financial situation, how many kids you have etc.  So only use the following as guidelines.

 Don’t let the following suggestions discourage you from an allowance and don’t stress over how much. 

Remember, the intent is to give your child practice using money. 

To find where you can find money to support your child’s allowance read the “What Should Allowances Be Used For” section below.

How Much Should Kids Get for Their Allowance?

Weekly Allowance Amounts

Most parents give either 50 cents or one dollar for every year of age weekly.

So, a 7-year-old child could receive a weekly amount of $3.5 or $7, respectively.

The going rate for kids’ allowance

Moneyroster.com 2019 survey shows the average allowances from ages 4 – 14.  As you can see, the amount is in line with the 50 cents – $1 amounts noted above. 

 In our family, we have gone with the $0.50 approach but rounded up.  So, my 7-year-old is receiving $4 per week.  We wanted to start low so that we had wiggle room to increase the amount as my child grows, and his wants and needs also grow.

 A few other things you should consider when determining how much to give:

  • Will the allowance be used to cover necessities such as lunches, clothing gifts for friends? (See guidelines below for more details)
  • Can the amount be easily divided into savings/giving/spending “accounts”?
  • What will your child be buying? Will they be able to save up for their significant wants with the allowance they receive without getting discouraged? (Don’t forget to factor in any additional money they may receive from working or birthday gifts when doing this calculation)

CHAPTER 5

Allowance Use By Age

This is where a lot of parents get tripped up when giving an allowance.  Allowances are not “extra money.”  

Allowances should replace one or more of your current budget lines. In other words, rather than you buying stuff for your child, you should provide them with money to buy for themselves.

For example, carve out some money from your grocery budget, and have your child manage their lunch budget.  Your child should be using their allowance to buy what you would have been buying for them.

What is the Appropriate Age to Start an Allowance?

Toys, lunches, clothing, personal hygiene are all items they could be purchasing for themselves.  While they do, they will be learning how to budget, and stretch a dollar.  Let them keep what they don’t spend so that they can reallocate money to their priorities.  So, if they want designer jeans and are willing to eat a month’s worth of peanut butter and jelly to sandwiches to buy them, let them. 

The key is that you cannot bail them out with extra money or by buying for them.  If you want your child to learn money managing skills, you need let them figure it out.  You will find your children are much more economical when they have to spend their money on themselves.  The beauty of this is that you do not need to find “extra money” to support the allowance; it is money you were going to spend on them anyways. 

As your child becomes more comfortable with money, they should be able to take on a more significant share of the purchases for themselves. By the time your child is in their late teens, they should be managing most of their purchases. That, of course, will not be where you start with your 5 and 7-year-old, but this is where you need to end up.  Let’s take a look at the differences in allowances by age.

Allowance for Ages 5 to 9-Years-Old

When you are first starting your allowance practice, especially if you start with children younger than 10, you will find the focus will be on toys and maybe treats. 

Remember you are giving your child this money in part to empower them; to allow them to make choices.  You can and should put some boundaries around their choices, but not so much that they do not feel like they can buy what they want. 

One tool that can ensure some boundaries is a “Do not buy list.”  Do not make this list overly long or complicated, and you can always add more to it later.  For example, our list only includes two things: treats (gum, candy, chocolate, etc.) and toy weapons (guns, knives, etc.).  But as my kids get older, it may include inappropriate clothing or violent video games. 

Allowance for Ages 10 to 14-Years-Old

By this stage, if you have started early, you can start to transition that discretionary toy budget into something more tangible.  Maybe a lunch budget that your child needs to manage.  Around nine years old is the prime age to begin increasing purchasing responsibilities. 

Make sure you are increasing their allowance as they age.  Also, make sure that you continue to focus not just on spending but setting and hitting savings targets.  Saving is a critical part of managing money, and your child will need your support to master that skill.

Allowance for Ages 15 to 17-Years-Old

By this age, I would no longer consider this an allowance per se.  If you started early and your child has mastered many of the allowance skills by this age, they should be receiving a monthly budget.  It may be a good time to switch the weekly pay to a bi-weekly payment to help them get used to standard pay periods.

While you will still likely be providing them with breakfast and dinners, they should be managing their lunch, clothing and hygiene budget and any discretionary spending.

If they find that the amount they are getting from you is no longer sufficient, encourage them to get their first jobs.  First jobs are opportunities to develop the work ethic that we hope they carry into their careers.

CHAPTER 6

About More Than Spending

Don’t forget that an allowance should not just be about what your children can buy for themselves.  A portion of allowance money should be set aside for donating. 

Why donate? Giving is essential in both developing financial skills and contributing to well-being.  Paradoxically giving makes you feel wealthy and happy.  Additionally, if your child focuses only on spending money, they may become shallow and self-centered.

 

Giving provides an opportunity to think about the privileges we have while also contributing to solving big problems.  Just as you help your child set savings targets, help your children find and donate to a charity that resonates with them.

CHAPTER 7

Guidelines in Less Than 12 Steps

Here are 11 steps to follow to start your allowance practice.

 1. Define your frequency and be consistent. Start with weekly and move to bi-weekly when your child is in their teens. That consistency will give your child a chance to start budgeting and saving regularly.

2. Define the amount. Try to make it enough to start making small purchases, but not so much that they don’t have to save for the big stuff.


Allowance Guidelines in Less Than 12 Steps

 

  1. Have a place for them to keep their money. Forget about the piggy bank and use clear jars so your little one can see their riches grow. Label the jars spend, save, and give. The three jars method is an easy way to start teaching the concept of accounts and budgeting

  2. Explain to your child why they are getting an allowance: to practice using money. A skill they will need for the rest of their lives.

  3. Have your child agree to your Do Not Buy list.

  4. Let your child know that they will not be getting more money outside of the allowance. If the allowance is for lunch or clothes, they need to make it last.

  5. You can lend your child money to get them into the habit of paying bills, but as a rule, try not to lend them more than one week’s allowance. Make sure they pay it back.

  6. Help your child define savings goals. Remember to reset savings goals once they meet the target.

  7. Help your child find ways to donate a portion of their allowance.

  8. Let your child know what, if any, behavior will cause the allowance to stop.

  9. Use the allowance (the giving, the buying, the saving and everything in between) as teachable moments. The allowance alone is not sufficient to learn the skills required to manage money.

CHAPTER 8

Cash Before Credit

While the world may have gone digital, allowances should start with cash.  

There are countless apps and ways to make giving allowances convenient for parents.  But your convenience is not the purpose of the allowance. 

Why Cash? It is tangible. A child can see how much money they have, and interact with it.  

If their money jars are empty or overflowing with cash, they will have a better understanding of what they have than digits on a screen.

While the world may have gone digital, allowances should start with cash.  There are countless apps and ways to make giving allowances convenient for parents.  But your convenience is not the purpose of the allowance. 

Why Cash? It is tangible. A child can see how much money they have, and interact with it.  If their money jars are empty or overflowing with cash, they will have a better understanding of what they have than digits on a screen.

The other advantage of cash is the cognitive connection made when a child exchanges physical money for a good or service.  Making that mental connect and experience the feeling associated with that transaction is a necessary part of understanding personal finance.  Transacting in cash makes that connection happen quicker.

There is no end to the great apps and cards out there designed to help you manage allowances.  RosterMoney and the Greenlight cards have been receiving some excellent reviews.  But do not go digital too early, have your child master cash, before cards or apps.

CHAPTER 9

Final Take-Aways

Once you have started giving an allowance, stay consistent.  

Stay positive and give your little one the freedom they need to experience all the highs and lows of buying, saving and giving. 

Do not be overly regimented. Don’t forget the purpose of the allowance is to let them take the lead.

Allow your children to make mistakes.  We can learn more from our mistakes than our successes.  

 

Final Take-Aways

Losing money, buying something cheap rather than delaying gratification for the well-made version, or losing a toy that was not adequately secured, are all aspects of having and using money.  So, don’t deprive your children of these moments.  Their small losses now will protect them from more significant losses later.

Once you have started giving an allowance, stay consistent, stay positive and give your little one the freedom they need to experience all the highs and lows of buying, saving and giving. Do not be overly regimented. Don’t forget the purpose of the allowance is to let them take the lead.

Allow your children to make mistakes.  We can learn more from our mistakes than our successes.  Losing money, buying something cheap rather than delaying gratification for the well-made version, or losing a toy that was not adequately secured, are all aspects of having and using money.  So, don’t deprive your children of these moments.  Their small losses now will protect them from more significant losses later.

Don’t let the learning stop after your initial conversation.  For allowances to be beneficial, it requires both the exchange of money but also the exchange of knowledge, therefore remain an active participant in the allowance process. Help them set savings goals and find worthy causes to donate to.  Use all aspects of the allowance as teachable moments to keep the conversation about money going.

Last take away.  Giving an allowance is a fantastic gift, but it also requires that you give up a lot of control.  Up until this point, most parents would have had all of the buying power.  The allowance equalizes this power disparity a great deal.  Don’t let that dissuade you.  Remember, we are raising adults.  The goal is to get them to be self-sufficient members of society.  We need to empower our children, and this is an excellent method to do so.

Need more tips for teaching your kids about financial literacy, go to CliftonCorbin.com or subscribe to my newsletter. 

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My parents didn’t talk to me about money – How? Part II

In my last post, I touched on the idea that you do not need to be an expert to talk to your children about personal finance.  In this post, I want to focus on some common refrains you may have heard in your childhood- “We don’t talk about money.” or “Don’t worry about it” or “My parents didn’t talk to me about money, and I turned out fine.”

I consider myself very fortunate growing up because I did not hear any of those phrases in my house.   My parents were very open around the topic of finances. However, I recognize that this was not typically the case in many homes.  For many of you, the topic of money, especially with your parents, may have been a forbidden topic. Money is not something you could talk about. It would have been just as inappropriate to talk to your parents about money as it would have been to ask them how many times they had sex.

If this resonates with you, I can understand why you may be hesitant to talk to your child about money. Our environments shape how we relate to our world, and thus, you may feel paralyzed around this topic. Many parents have admitted that this resonates with them, and they are regretful that they never broached the topic with their children.

What Are You Passing On?

Why is it that money can be so taboo? Is it related to feelings of shame or embarrassment about the finances, what our parents had, or didn’t have? Or perhaps it was their lack of knowledge on the topic?

How might this affect a child, the lack of transparency? It could result in feelings of shame or embarrassment. Some report that it made them feel as if they were not a trusted confidant to whom their parents could share that personal information.

We often inherit our parents’ values around subjects as personal as these. So how have your experiences shaped the way you feel about money now? Does the thought of talking to your child about money, raise those same feelings?  Do you still feel embarrassed or shame? More importantly, do you want to pass those values and feelings on to your kids?

I have a feeling the answer is no.

Be Conscious and Deliberate

A lot of feelings we have towards money, and even actions we take with our money, are irrational. I love the study of behavioural economics because it confronts the fact that people are not rational beings. We may know that we should save, but instead, we spend. We know that shopping therapy will leave us feeling worse in the long run, yet we continue to do it anyway. Yet, if we want to have a strong grasp on personal finance, we do need to act rationally and be aware of our feelings and actions regarding money. To truly be reflective and self-aware, we need to go back and revisit some of our early experiences with money.

If the subject of money was “off-limits” with your parents, this likely created some confusion, anxiety or both for you.  If you are willing to reflect honestly, take some time to think about how those early experiences shaped your beliefs about money and how you spend, save and give now. We will likely want to be much more conscious and deliberate with what we teach our children.

We want our children to be comfortable to come to us when they have questions about the world, whether that be about relationships, academics, money or otherwise. To forge that trusted relationship with them, we need to reciprocate and show them that we trust them as well.

You don’t need to whip out a pay stub on day one, but start the dialogue and stay open to answering their questions honestly. A stronger relationship with your child will be your reward.

Keep Learning, Together

With the subjects I address in these two posts, I would also want to encourage all of us to brush up on our knowledge of personal finance. Also, as we know, our children will do what we do, and not what we say. So if your finances are messy (as it can happen to all of us, myself included), take the time to get them in order. If your child is old enough to understand what you are doing, add them in some of those discussions. If you commit to paying down some debt, include your child in those discussions. Let them see that you are not perfect, but model how to set goals and work towards them.   They will act as your accountability partner. And it is powerful for them to see their role models (you) working towards your goals.

How? Part I. I’m not financially literate

Let me address the elephant in the room. I am advocating that we teach our kids about money, but is based on a few key assumptions. In the next two posts, I will address two such assumptions.  The first being that we are financially literate ourselves, and secondly, we are comfortable talking about money.

I’m Not Financially Literate

With regards to our financial literacy, without a doubt, we can always learn more. Investing, debt management strategies, retirement planning, and the list goes on. There are endless methods and tactics for how, we as adults, should be dealing with money. You have probably heard some of them:

  • “Save automatically”
  • “Pay yourself first”
  • “The 50/30/20 rule”

The list is endless. I’ve read something recently that says, in effect, “We can not give, what we do not possess.”

So how then, can we be expected to teach what we do not feel we know?

Yes, You Are Financially Literate!

To that I say, don’t sell yourself short. We all have had experience with money. Our journeys are all different and  our level of knowledge varies vastly.  However, when you compare that to  your child’s knowledge base in this realm, you are a wise financial sage. The important takeaway is that if we are not talking about money with our kids, they will be forced to  will be  interpret what they can from the media and other social influences in their lives.  It is best to provide a basic shared foundation of finance, to help our kids start off their relationship with money in a positive way.

Simply earning an income, paying bills,  and spending your money has given you a solid grasp of the basics. You likely know how to prioritize your spending to cover your needs and you  understand the difference between a need and a want.  One way or another you have learned the ramifications of spending more on wants versus needs. For the outset, your child does not know these things. Here is where you start.  Teach your child that money is a limited resources, and our wants our unlimited.  Discuss the need to make decisions about how this limited resources will be used. Talk through how you make your decisions and what you value.  The more complicated money management strategies can come later.  If you want, you can learn those strategies with your child when the time is right, but don’t let a lack of complete knowledge on the subject stop you from even covering the basics. We owe this to our children.

 

What is money?

Have you ever tried to explain the concept of money to a child? Possibly along the surface,  most children have some sense of what money is at an early age. Try this with your little one. Ask them what money is?

My guess is that your child would respond with something along the lines of “Money is something that I/we use to buy things that I/we want.”

While that definition is a sufficient starting place, it is certainly limiting if you want your child to have a firm handle on personal finance. When we look closely at that definition, it only talks about the spending of money. Additionally, it only just touches on why we need money, but it leaves me wanting for more.

How To Define Money

Here is my definition of money, and I would suggest you use it with your child too.

“Money is something that we trade for things of value.”

This definition is general enough that it captures new digital currencies, as well as, the well-established notes and coins that we are all so accustomed to using. I also like it because it uses the word “trade” rather than “buy” or “sell.”

Trade Vs “Buy and Sell”

When you buy or sell something for money, you are essentially making a trade. We must trade something to acquire money. We could sell something for money. But if you are like the vast majority of people, you likely make a living by working, not by selling something. When you go to work, you could say that your employer buys your time and your skills, or you could say you sell them your time and skills. Both of those statements are factually true. But I think it is more apt to say you trade your skills and time to your employer for money. The use of the word trade captures both parties’ motivations. You want the money, and they want the time and skills. You both come out getting what you want.

Similarly, when you go to the store, you trade the money you acquired to buy the food, and clothes your children eat and wear. No matter what side of the trade you are on, if you are buying or selling, it is always a trade. I feel like trading is a concept and term that children can relate to intuitively. From a young age, children start the practice of trading. They trade snacks, cards, toys, books; you name it, they trade it.

Needs vs Wants

The other reason I prefer this definition of money is that it better addresses what we trade for money. We need our children to be able to discern the differences between needs and wants. To do that, we need to broaden what they think we use money for. If they think money is only used to acquire what we want, it will be harder to cement in the differences between wants and needs. That is why I prefer speaking about money as a means of acquiring things that we value. Those things can be the things we want, but it can also be the things that we need, such as food or clothing. By speaking about what we value, we can more easily talk about what we prioritize.

How do you feel about my definition of money? Do you have a better description? Did your kids throw you for a loop when you asked them what money is? Let me know in the comments.