Allowance: Teach money and

math skills; don’t bribe

Many parents believe that allowance should be earned, but allowance should never be tied to chores or good behavior Allowance can be a wonderful tool to teach children about money and give them the opportunity to practice math in a real world application. But it is terrible as a reward system; it sets up an ongoing struggle and instills the wrong beliefs in your child (i.e., “I am helping out because I’m getting paid,” instead of “I’m helping out because I’m a good kid, and because contributing as a member of my family is important”).

To avoid disputes about money, I suggest that you   cover all necessities – food, clothing, shelter, education, instruction, good-quality educational toys and games – as well as presents for birthdays and holidays. As you might expect from my thoughts about restraint, I have a relatively narrow definition of “necessity,” and I suggest that you adopt one. If your children want any additional “luxuries,” let them pay for them out of their allowances or put them on their “gift lists”.

At age four or five (when they are beginning to acquire math skills), children can start receiving a small weekly allowance, along with encouragement not to spend it right away. They will quickly see how money accumulates if they choose not to make impulse purchases. (You can keep their money in a safe place or just keep track of their “account” on paper, giving them the money when they choose to spend it.) You can add any small cash gifts they receive from relatives or friends for their birthdays or holidays to their account. You should deposit gifts of large checks in a special bank account for your child and turn it over to her when she is old enough to manage it responsibly. (My husband and I picked age thirteen, but you can choose another age.)

With my children although their weekly allowances were meager, they got 5-percent interest every month on the money in their accounts.  (You can determine for your own children the amount you give each week, the interest rate, and the time period during which the family account will operate. Do your math carefully, however, because the compounding of interest at 5 percent per month is hard on the “bank.”)

This arrangement taught our children restraint by rewarding (at a high interest rate) saving over spending. Each of our kids would see desirable things and wonder out loud, “Should I buy it, or wait for more interest?”

The family bank account system also provides an opportunity to teach math to your kids; even if they don’t learn percentage as four-year-olds, the accounting will at least help them understand the usefulness of numbers (and the power of compound interest). When we ended the system for each child at age thirteen and deposited funds from their allowance accounts into their real bank accounts, they saw the paltry interest that banks offered, but the lessons of savings had stuck with them.

The bottom line is that you can give children a modest allowance – just enough for small items a child might fancy – and instill math abilities and self-control at the same time.

QUESTIONS FOR REFLECTION

  • How effective is our allowance system as a tool to foster our family’s values, as opposed to a system that rewards them for doing things they should be doing as a matter of course?
  • Do I use allowance to teach my children about math and money?
  • Does my allowance system encourage entitlement and excessive consumption or does it encourage self-control?
  • What do I want to provide for my children and what do I want them to buy with their allowance? How much money do I need to give them for allowance so that if they save, in a reasonable amount of time, they will be able to afford something they want?

TO DO THIS WEEK

  • If you already have an allowance plan in place, you may decide to modify it in keeping with your family’s values. If you feel it’s appropriate after you reflect on the questions, develop a revised plan and present it to your children.
  • If you don’t have an allowance system in place, consider devising one based on sound principles and implement a system as soon as possible.