Functioning in today’s world requires the ability to manage money. From my point of view, it’s a disservice to let kids grow up thinking that money will magically show up whenever they want something. It’s not helpful to inadvertently teach them that they can obtain money by whining, cajoling, or throwing a fit. It’s a way to sabotage our own teaching when we bail our kids out whenever they overspend. Competence in money management comes from experience, not from being on the dole. Preparing kids to eventually be on their own means systematically tutoring them in money matters.
Parents have found ways to successfully teach their kids how to deal with money for generations. I don’t claim to have a corner on the “right” way to do it. I can only share what many parents in my parent study groups have found to be helpful as a modification of the age-old allowance.
The fundamental principle is that kids can’t learn to handle financial responsibilities unless they have some money of their own to manage. Done well, a weekly allowance covers as many weekly needs as possible so that the child doesn’t constantly have to ask her parents for money. The point is not to give your children more money than you normally would but rather to gradually shift as much responsibility for money management to them as possible to prepare them to handle money well.
Tips for Making an Allowance Work
- Be a good role model. If you don’t already, make banking and paying bills visible. When kids see their folks making a special time once a week to deal with the budget and to write out checks or go online to pay bills, they understand that this is part of what being an adult is all about.
- Sit down with the kids and ask them to list their fixed weekly expenses. This might include lunch money, club dues, a church offering, and money for a weekly movie rental, for example – whatever you usually dole out over the course of a week. Then add the amount you usually end up throwing in for treats or outings each week. For older kids and teens, add in what you would normally spend for their special toiletries. If you generally give your kids money to help them buy presents for family members on birthdays and holidays, add that in too. The total is the weekly allowance. It may surprise you just how much it is.
- Help the children draw up a “budget.” Stress that they are expected to pay their “bills” just like you do. If they want to be sure to have enough money for an unexpected event or item or to buy someone a present, they need to be sure to save some percentage of what they get.
- Decide on the frequency of the kids’ “paychecks.” There’s nothing sacred about a weekly allowance. Some kids can handle getting a whole week’s money all at once. Some will burn right through it by Wednesday. When that’s the case, start out with maybe some money coming in on Monday and some on Friday (so they are sure to have money for the weekend). As they get better at budgeting, expand the time between payments. Older teens often eventually benefit from having a monthly allowance to manage so they get practice in thinking longer-term.
- Be absolutely clear that there will be no extra money coming from you between allowances – and mean it. If you open your wallet as soon as the kids run short, you are teaching them that there are no consequences for bad planning. Warning: This can be painful. It’s hard to watch a child have to stay home when all his friends are going to a movie and he’s already spent all his money. But, trust me, over the long- , it’s more painful for a child to grow up clueless about money.
- Don’t argue if a child asks for money in between allowances. Simply say something like, “I’m sorry you ran out. Your payday is on Friday and there’s nothing I can do.” End of story. There’s no need to be angry or to give your best lecture on responsibility. Not having money is a much more powerful consequence than anything we can say. On the flip side, don’t be persuaded to give an advance. It’s important that kids not learn to live on “credit.”
- Especially in the beginning, have a weekly review of how it’s going. It’s important to remember that this is an educational situation, not a trial. Criticizing and scolding will make the meeting so painful that neither you nor the kids will want to keep up the lessons. Instead, look at what went right and where your child or teen needs extra help. If you find that there is a legitimate gap between the allowance and expenses increase the allowance. Often kids get more conservative when they are spending their own funds. Don’t dock them if they‘re not spending it all. Praise them for becoming good savers. You can certainly provide financial gifts now and then (birthdays, when the kids bring home a stellar report card, the tooth fairy, etc.) but these should be genuine gifts and not included in the allowance routine.
- As kids get older, more and more responsibility can be turned over to them. Some parents, for example, give their teens the entire amount that would normally be spent on back-to-school clothes in the fall. They then have a conversation about the difference between needs and wants and together make a list of where the money should probably go. Then it’s up to the teen. If she or he decides to buy one pair of designer jeans instead of two pair of a no-name brand for the same price, so be it. There’s a lesson to be learned when that designer pair is dirty and there’s not another clean pair in the drawer.
- It’s not helpful to withhold an allowance as a punishment. When the allowance is a teaching tool, taking it away deprives the kids of important lessons. Most of us don’t lose a paycheck for forgetting to take out the trash or coming in 15 minutes late or losing our temper now and then. Neither should the kids. It’s more helpful to find another consequence for misdemeanors.
When Family Money Is Tight
If money is difficult to budget in your family because income is unpredictable or very tight, it may not be possible to give the kids a regular allowance. But you can still help them learn to handle money. You can make the grocery shopping a teaching moment, for example, by having the kids work with you to figure out how to buy what the family needs with the cash you’ve got. Kids can’t appreciate how much the phone or the electricity costs unless they see those expenses. Older kids can sit in on paying all or some of the bills. They are less likely to complain if they understand the reality of their family’s finances. A teen who gets a part-time job can be taught how to budget and save so a paycheck doesn’t just burn a hole in his pocket. Do try to give a little money now and then to kids who are too young to be in the workforce so that they can have the experience of deciding how to handle it.
It’s the Skills that Count
Imagine my surprise when one of my students last semester told me she was able to buy food for herself for $100 a month while another complained that his parents gave him only $100 a week! The young woman’s parents had done a fabulous job teaching her how to juggle funds and manage on what she had. The other student rather sheepishly confessed to me that before college he’d never even thought about how much groceries cost. There’s a lesson in this: How much money is enough seems to be a state of mind. But knowing how to manage what you’ve got is a state of skills.