Lately, I find myself in frequent conversations about the merits of allowances. It's a hot topic considering all the attention paid of late to financial literacy.
Just last night, I was engaged in a debate with my son about why he can't have more allowance. It seems his Lego fund is not growing as quickly as he would like and he wants a raise. Wouldn't it be nice if I could tell my boss my kitchen reno fund wasn't sufficient and I needed more money? But the world just doesn't work that way.
It's important to teach kids about the way the world works when it comes to money, and an allowance is a good first step. It will be a while before financial literacy is taught in all Canadian schools, so the money talk needs to start at home.
Recently I was asked to speak on a Halifax radio show about the best way to handle an allowance. It was tricky for me because I don't believe there is a best way. Every family is different, and some money concepts aren't fully understood until children reach a certain age. The important thing is to get the conversation started and keep it going throughout every learning stage.
To help you get started on an allowance system, let's look at the truths and myths behind some common allowance assumptions.
Don't give money for nothing
Money doesn't grow on trees. I think we can all agree on that. What we can't seem to agree on is how to hand out an allowance. Should it be tied to chores? Odd jobs? Or do we give it without any stipulations? And are we scarring our children for life if we choose the wrong method?
At my house, allowance is given after the kids help with the weekend cleanup. And yes, I'm aware that some experts say chores are part of family life and shouldn't be financially rewarded. I'm ignoring those experts for the moment. After all, am I really supposed to send my four-year-old out to walk the neighbour's greyhound, or put my six-year-old in charge of the lawn mower? This system is working for us for now.
I recently received a book called Earn It, Learn It, in which the author sets out a plan for having children mimic real-life jobs in order to earn an income. Some day, when I'm not so busy commuting to and from my full-time job and running a busy household with two young children in tow, I'd love to try this method.
An allowance teaches kids to handle money
Yes it does, but what do you want them to learn? If your children are young and you want to teach them what money looks like and what it's for, hand over some coins, let them play with and count them, talk about what those coins could buy now versus what they could buy if they saved up for a few weeks.
If you have older children and you want to teach them that they need to work for a living, by all means, get them out there shovelling snow and pulling weeds, and pay them accordingly. You may find your allowance system matures as your children do.
Allowance should be given once a week based on age
This rule of thumb is a good starting point, but doesn't work for everyone. A single parent with four teenage children, for example, may not be able to afford to hand out that much money every week. And if you're like me, you don't relish the prospect of explaining to your younger child why she's not as valuable as her older brother. That's not the kind of money lesson I want her to learn.
Some parents peg allowances to their biweekly paycheques, while others only give money when their children go above and beyond their expectations. Do what's practical for you and what you can afford.
Use three jars
The three-jar method suggests separating money equally into a jar for spending, a jar for saving and a jar for charity. It's a simple yet effective way to teach children to budget, save and give. I tried this method for a while, but my kids were more interested in unscrewing the lids and swapping the coins around than setting financial goals.
They both have digital piggy banks now that tally their coins and can't be opened without a screwdriver. When I wrote about those banks, someone told me piggy banks are passé because kids can't see the money grow and I should be using a bank that stacks the coins instead. Who knew piggy banks could be so controversial?
Whatever the system, whatever the amount or frequency, an allowance is a great first step toward financial literacy for children. The important thing is to get your kids interested in money and to get the whole family comfortable talking about how to manage it.