I've always felt it is important to teach my kids about money. My kids are young and to this point I have not put an allowance system in place. At home, we have implemented reward-based systems where they get acknowledged and rewarded for good behaviors. We’ve implemented things like a kindness calendar where they get stars every time they do kind acts. But to this point, the rewards have not been attached to money.
My oldest son is now 7 and I think it’s time to implement an allowance. I think he’s ready. I think my 5 year old is ready too. Being a financial professional, I have never been afraid to talk to my kids about money. In fact, it think it is so important to talk to my kids about money at an early age so they develop the right foundation sooner than later.
They are neat kids because they do understand money and the difference between saving, spending and sharing. Both Robbie and Connor have shown they have a bit of the saving gene. That being said, they are also being influenced by friends and TV and are starting to want things that other kids have. I think it’s time to teach them about a means to earn money to buy things they want.
Suze Orman does not believe in allowances
Coincidentally, I was watching financial guru Suze Orman talk about allowances on TV. In her opinion, most parents utilize allowances the wrong way. She says “Most parents give their kids allowance based on age. For example, at the age 10, the child gets $5 per week; At age 12, they get $7 per week; At age 15 they get $10 per week …”
Suze believes this entitlement based allowance program is the wrong approach because the kids are not learning anything about money. Most kids who get an allowance think they get it ‘just because’.
Give your kids money based on the work they do
Suze thinks children should not get paid for tasks that are part of the responsibility for living in a home, which might include cleaning a bedroom or making the bed. Parents don't get paid for making dinner or washing the dishes, and there are responsibilities that everyone must cover to keep a household running smoothly.
When it comes to allowance she thinks we need to stop calling it an allowance. She prefers to call it ‘work pay’. If they want money, they need to work for it. This is how the real life works and better that they get used to it at a young age.
“Work pay” could include other things like washing the car, vacuuming and mowing the lawn. She recommends attaching a dollar value to a chore. For example, washing dishes for the week might be $3, mowing the lawn might be $5, etc. She then says you can let the children pick chores they want to do. This exercise teaches them many important things — how to talk about money, for one. It also starts to teach them negotiating skills, and it introduces the concept of work for pay.
What should I do?
There are a lot of different theories on allowances for kids, which I will continue to explore in future posts. I must admit I like the idea of earning money for certain things because this is how it works in real life.
Parents, please share your perspectives on allowance and your experience with me and with others. I’d love to get your thoughts!