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Raising a Financially Intelligent Child: Focus on Allowances
The authors of The Financially Intelligent Parent recommend giving your child an allowance ... but don't tie it to chores.
By Marian Wilde, GreatSchools Staff
Jon and Eileen Gallo, authors of The Financially Intelligent Parent: 8 Steps to Raising Successful, Generous, Responsible Children advocate allowances as a tool to teach financial literacy to children. Furthermore, they believe allowances should not be tied to doing chores, reasoning that children need to learn to contribute to the household and to develop a work ethic independent of material rewards.
GreatSchools.net Staff Writer Marian Wilde asked the Gallos for guidance on some of the thornier aspects of allowances.
Marian: I give my kids allowances. My 9-year-old gets $5 a week and my 14-year-old gets $10 a week. (And I'm finding that this might be too little.) My 9-year-old wants to know why he isn't getting the same as his older sister. Do you have advice for parents on this issue of parity between siblings?
Eileen: I would just say that he's the younger. That's the reality, that he's younger so he gets less money.
Jon: May I respectfully disagree?
Eileen: You may certainly disagree.
Marian: Now, this is getting interesting.
Jon: I think of an allowance, and I think Eileen does too, in terms of a tool that's designed to teach a kid to think reflectively. If you go to our Web site, you can download what we call our allowance tracker. It's a spreadsheet that allows you to keep track of what you're spending on your kids for about two weeks. You keep track of your spending for two weeks and then you decide which of those items you'd like the child to become responsible for. So for the 14-year-old, if you're spending $10 a week on video games, and this is just hypothetical, you might decide that video games are something that you're no longer willing to pay for. Instead you're going to give your child an allowance of $10 a week.
You sit them down and say, "I've been spending $10 a week on video games for you. I'm not going to buy them for you anymore. Instead I'm going to give you $10 a week. You can use the $10 to buy video games or you can use it to go to the movies or you can use it to buy books or you can use it for any other purpose you want to, but I'm not going to buy video games for you anymore. You're now responsible for them."
Eileen: But we do also encourage saving and putting some aside for charity.
Jon: So you'd give them $12. You'd say, "I want you to put $1 away for savings and $1 for charity. And now you've got 10 bucks which is what we were spending for you on video games and now you've got the choice of how you want to spend it." Now she's got to make a choice and to think in terms of alternatives and consequences, and she also understands what the allowance is for. So if you did the same thing for your 9-year-old, you'd say, "I'm spending $7 a week on you." You give him the $7 and he says, "Why am I not getting $10?" Then you can say: "I'm spending a different amount on each of you for different things and you are responsible for your baseball cards, or whatever it is, and your sister is responsible for the video games." It'll make both kids understand why their allowances might be different.
Marian: I also told them that they had to buy birthday presents for family members and friends with the allowance.
Eileen: It's up to the parent to figure out what they want covered. Keep in the back of your mind that an allowance is really a tool for them to make choices, to feel what it's like to use money, to feel what it's like to make mistakes.
Marian: How do you feel about deducting money from a child's allowance as a punishment?
Eileen: Then the child can come away having a negative experience about money.
Jon: Don't tie the allowance to not doing chores. If they don't do their chores, there have to be consequences, but don't make the consequences the allowance. Make the consequences tied logically to what they failed to do. If they didn't pick up their toys and they were supposed to, maybe you need to put the toys away for a week.
Updated February 2008
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Comments From GreatSchools.net Users
03/5/2008:
"This is a great money lesson for teenagers, and is now used widely in our family. In 1970 I talked my folks into giving me a monthly allowance of $70, with which I would pay for all my clothes, lessons, meet fees, tithe, save 5%, entertainment, auto fuel . . .in short everything but household items and summer camps (because the price was unknown in advance and varied much). The reason I did this was because my Mom insisted in buying me unwearable clothes because 'she was buying them.' When I proposed the allowance Mom said there was no way they could afford a $70/mo bill, but Dad said hold up--he was pretty sure they spent at least that. He also said if I asked for another penny, the deal was off. To arrive at the allowance amount I had to show a complete budget that included shoes, winter coats, etc. My monthly allowance gave me, at 14-years old, tremendous financial independence. Freedom to succeed or fail. The motivation for a teenage for this independence is gre! at. And it only worked because I KNEW my parents were not going to give me another cent or an advance. Soon I discovered I was learning how to manage my money, and by the time I was 16 years old, I had more savings than my working older siblings. My husband and I gave our kids the same deal when they hit 8th grade. They used a computer spreadsheet to calculate (and update) their expenses for a year, we divided it by 26 (our pay periods) and had the bank automatically transfer the money into their (no fee student) checking accounts. The oldest child learned in one day how to manage and save money. The younger child had to learn an early, hard lesson when he spent too much for a gift for his girlfriend and didn't have lunch money. Better he learn life's lessons on a $50 teddy bear, than on a $50,000 car. Nor we did advance them another penny over the budget. Today, fortunuately, both kids are models of economic stability. The older child earned her way through colle! ge, then worked to help support her husband through undergradu! ate and seminary. The younger child is a military junior officer, but has already has made several paper, land and property investments that are worth approx $850K (this kid started out as a natural sprendthrift until it was 'his' money)."
01/23/2006:
"Great article, but it didn't really focus on The Value of Money. I explained to my son when he was very young (30 years ago!): I can either buy that videogame, or groceries. Would you rather eat all week, or play a game? His response was, 'I could play it at my friend's house.' They don't have the concept of 'how much' unless you put it into terms they understand. Now there are commercials comparing Real Life items to 'so many Dollar Menu items'. That really helps! "
01/14/2006:
"I think this article is great. For several years we have been giving our children an allowance, and I did not tie it into their contibution around the home. But sometimes you don't know if you are doing the healthy thing. It's nice to hear that my decision was based on solid ideas. I also like the idea that the kids are giving some of their allowance to charity. This is so important. Thanks again."
01/13/2006:
"In our family we do tie allowances to chores Mon- Fri. For example, my 9 year old gets $1 per day ($5 per week) if chores are completed by the time Dad gets home. Of that $5 50% goes to savings 10% goes to tithing 10% goes to the poor and 10% goes into her mission fund (she chose to donate to the poor, and missionary fund for her future mission) However we also have Sat morning chores where she has to wash windows, dust, help vaccuum and wash the van in addition to her regular chores. These chores do not get a monetary reward. But if we all finish our chores early enough we get to go do something fun or just hang out doing whatever we want. We linked the Mon-Fri chores to allowance because it goes against my grain to just hand my kids money. I want to prepare them for working at 'real' jobs and doing their best in a timely manner. By the way they always seem to have plenty of $$ and buy gifts for gift giving or self.Sometimes we even borrow from them. My 5 year old gets 50ce! nts per day or $2.50 Mon- Fri.He is currently saving for a $60 remote car he thinks he must have. It will take him several months but by the time he purchases it I think he will have a great understanding of money. So far it is working out great and we have VERY Responsible kids. Thanks."
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