Education Funds

Incorporate your money values into your allowance program

In case you did not know, my kids have reached an age where it’s time to put together an allowance program for my kids. I’ve been researching it a lot to make sure I do the right thing and I have been sharing my thoughts along the way.

This week I had a good conversation with friends and especially my wife and I decided the best place to start before coming up with the details of the program was to make sure it incorporated some of our financial values. Here’s what we decided was important for our family allowance program:

It has to be simple.

In my financial workshops, I often talk about how building wealth is simple, not easy. I teach this concept to adults because we tend to make things more complicated than they have to be. Sometimes common sense is not common enough and it’s important to remember this as I develop our program for kids.

I remember developing a reward-based program a couple of years back. It started simple: You get a star for good specific behaviors. But then we complicated it where we took away stars for bad behavior and then we assigned a different number of stars for different things. The more complicated we made it, the worse the program became, and then we stopped doing it. We forgot that our kids were young (5, 4 and 2). From that point on, we realized that reward programs like allowances needed to be simple.

It must encourage saving.

Let’s face it, when kids get money, they want to spend it. They want to buy things. Far too often, they save $10 and then spend $10. Maybe this is the reason adults have such a difficult time saving because they were programmed to spend what they save. For our system, I want to encourage longer-term savings, which means they don’t spend everything they earn.

I believe anyone can save money with the right incentive. We see this with adults who are not good savers. When a matching program is implemented, savings rates increase. When interest rates are higher, savings increase. At this stage, I am not sure if I am going to implement a matching program in my allowance program to encourage savings. I think they might be a little young for this so I will see if they can just save money without the incentive. It’s something I will likely introduce, as they get a little older.

It should teach my kids about goal setting.

In the process of saving money, I want to encourage them to set goals. These goals will include what they want to buy but also goals about what they want to save.

My thought is when we roll out the program to the kids, we will talk about goals and hopefully help them recognize that money is limited and you can’t buy anything and everything. Setting goals creates purpose, intention, and motivation. Will they get this concept at the age of 5 or 7? Maybe not but I think it’s worth trying because it can’t hurt to motivate them a little.

Money is earned.

As I said in my last allowance post, there is some debate over whether you should link allowance to chores but I have no problem linking work to compensation because that’s what happens in the real world. If you think about it, that’s why they call it to work.

My hope is that our system teaches our kids about work ethic which is really missing in the work environment today. Some say it’s not about working harder but working smarter that counts. I say real success comes from working harder and smarter. If my allowance system teaches my kids that, then I’ve set them up for life!

The allowance system should be educational.

My take on an allowance it that the whole point of an allowance system is to create a foundation for learning about money and preparing them for the future. Allowance is the perfect opportunity to teach my kids my values for money.

I’ve always said that fiscally inclined parents have a responsibility to teach their kids about money because there is very little formal opportunity to learn about money management in the future. It’s not taught in schools enough and it’s not abundant in the workplace. Informal learning at home might be the most influential strategy to teach kids core values about money and it really starts with the allowance system.

So there you have the foundation of my allowance program. Values create that foundation and help set the details.

Do you have any other money values or beliefs that are important when it comes to teaching kids about money?


  1. We’re in the process of rethinking our allowance system for our 9 and 6 year old boys right now. We’ve been using the approach of dividing up the money into Spending, Saving & Giving but we are the ones who have set the amounts. Having just read “The First National Bank of Dad” I realize that the boys don’t really think of the Saving & Giving amounts as truly theirs.

    I’d be interested to know what you come up with as incentive to save. The interest rates at banks are not exactly motivational for adults, let alone the elementary school set!

    • Jim Yih

      Thanks Suzanne! I’ll definitely keep you posted. It’s a great point … they have to feel engaged and accountable.

  2. jerry

    Ive also read this article here , which basically has a freudian look about the cause of our financial practices.

    As parents, we have the responsibility to tech our kids to have a healthy outlook regarding finance.

  3. Bill at FamZoo

    A value that we hold strongly in our family is accountability. So, we wanted to establish a simple system that encouraged accountability for the inevitable mistakes kids make on the road to maturity – cell phone overrage charges, breaking the occasional window, speeding tickets, spilling coke on the laptop, etc. (All real examples from my kids, and I’m editing out the more embarrassing ones 😉

    Many times, the kids don’t have the money on hand to pay for their transgression, so we allow their virtual spending accounts to go negative and have them pay off the debt incrementally each week by garnishing their “wages”. In the meantime, they have to forgo their regular purchases. It’s proven to be an effective, unemotional way to reinforce our family value of personal accountability.


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