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A Strategy for Structuring Children's Allowances

An organized allowance program for children living at home is a good idea. Its goodness is measured by happier parents, happier children, less daily hassle, more constructive time by parents with their children, and children who grow up to be financially wise adults.
It has been said by some that you should never give money to a child without them having “earned” it. This implies that they must do a chore and get paid an amount for the work done. I disagree with this simplistic idea. It doesn’t work. It creates too much fuss. It makes the parent “judge” and “jury” on each piece of work done, doling out money more often than is needed. What I am for is teaching children how to manage money within the limits of available cash. The sooner children learn their money limits, the sooner they become efficient money managers. It is possible for your children to go to college and graduate without debt. And to the extent they have debt; it is possible to get rid of the debt in a few short years. Today, it is too common for children to graduate with debt they cannot handle, even if they can find a job within six months of grashutterstock_284334773duation. For example, can you imagine graduating with a degree in humanities with a potential annual income of $60,000 but with school debt of $200,000? There is no way you can pay off such debt in a reasonable amount of time based on earnings! It doesn’t matter that the graduate “qualified” for the debt when they obtained it, they can’t pay it off now and are not likely to have learned anything from their parents about how to manage their money so they can get out of debt. Perhaps, when spending the money on spring break in Florida, they were too drunk to care? Teaching children how money works, while they are young, using a good allowance program will help eliminate this kind of irresponsible financial behavior in young adults and help make your children ready to prosper financially as they go forward in life.
So back to the fundamentals. Let’s talk about what kind of allowance program is the best, easiest, and most productive for parents and child:
Objective: To teach children the value and limitations of money while minimizing financial burden on parents and eliminating the nagging of children for wants and needs.
Premise: Each child is paid a monthly amount for their “good citizenship” in the family.
Good Citizenship: Obeying parents, not calling other family members names, making beds, keeping rooms clean and neat, being on time for meals, doing assigned chores (taking out garbage, clearing the BadBehaviortable, mowing the lawn, watering plants, etc.), doing well in school. This all must be explained very clearly. Any breach (as agreed by the parents) deserves a onetime warning, and the next time means no allowance for the following month. No compromises!
Parents Responsibility: 1) To pay for all basic food, clothing, tuition, transportation and shelter; 2) at age 12, help the child set up a checking account at a bank or credit union; 3) set up a spending plan with each child that includes specific spending categories based on available allowance to spend each month; the child will track their spending according to the plan; 3) once a month hold a one-on-one discussion with each child to review their tracking of the plan and confirm their understanding of how spending, tracking, and paying self (savings) works. Do not be critical of their spending choices, but rather gently stress the importance of saving, making charitable contributions and managing what they have spent within their available allowance; 4) from time to time (i.e. once a year) discuss with the whole family, in general terms, the dollars it takes to operate the entire household and save for the future; 5) teach a good work ethic.
Child’s Responsibility: 1) To pay for all their extras (savings, charitable contributions [and/or tithing] treats, extra clothes, movies, cell phones, school dances, ski trips, per-mile-charge for car use, etc.); 2) tracking their spending by category for each expenditure; 3) be willing to sit down with mom and dad and discuss how they are doing with their allowance; 4) have a good attitude about work expected ChildHomeworkand money received.
The idea behind teaching children all these things is that the parents will know how to expect responsible behavior from their children and be strong enough to teach, train, and discipline their children to be contributing members of the family. In addition, if you do not know how to manage your own money using a proper spending and tracking system, there is no way you can teach these principles to your children. To get on top of your own finances and help your children learn to manage theirs, use www.moneymastery.com and choose the Basic program, which is free and includes a smartphone app for tracking expenses according to a plan.
How Much Should I Pay Each Child? Each of the following dollar amounts are simply suggestions as to what you could pay each child depending on their age. These amounts should be based on the available money for this purpose as dictated by your own balanced Spending Plan; if you need to pay less to keep your own Spending Plan balanced, then do so.
Suggested $ Amount:

  • Age 8-11: $15
  • Age 12-14: $45
  • Age 15-17: $75
  • Age 18 +: To be arranged depending on their ability to earn, college plans, marriage, volunteer service, military service, etc. By this time the child should be financially “on their own.” Parents should not be providing basic support for adult children.

Frequency: Monthly on the first day of the month.
Special conditions: a) Parents must be in agreement at all times, as far as the children know; b) amounts can be changed on birthdays, no exceptions; c) children can borrow from each other but they cannot borrow from parents; d) don’t make exceptions and “bail out” the child because they have not followed their spending plan; e) never deny the child’s desire to purchase something – let them buy it if they can afford it (of course this would exclude illegal or unsafe items!).
Income from work: The child should be encouraged to earn extra money. Typically this can be extra jobs the parents need doing or working for the neighbors pulling weeds, babysitting, mowing lawns, lifeguarding, summer jobs, etc. Extra money should be tracked in the same manner as the allowance.

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