A Growing Rich Kids reader asked a great question recently. She was unsure what kids should be expected to pay for with their allowance and what should still remain a parental responsibility. As always, there are a lot of ways to approach this. I have to say it took a few years – and a fair amount of research and experimentation – to figure out what works for us.
One of the most helpful things in answering this question was some advice from Janet Bodnar, editor of Kiplinger’s Personal Finance magazine, author of Raising Money Smart Kids: What They Need to Know about Money and How to Tell Them and mother of three.
- She says that an allowance should come with financial responsibilities. You don’t want to pay a strings-free allowance. That’s just a handout and all it does is teach kids to spend money.
- By shifting some of what you would normally pay for over to your children, you are providing them with the opportunity to make trade offs, be inspired to save and also experience set-backs and disappointments that they can learn from. You want them to be weighing up decisions like this: “If I spend my money on this video game, I won’t have enough to go to the movies with my friends at the weekend. Which is the best use of my money?”
The other important thing to remember is that, as parents, we still retain veto power. Just because you’re giving them some financial responsibilities doesn’t mean that you are abdicating your parental role!
- If they want to buy a video game or see a movie, we need to approve it first (I highly recommend Common Sense Media to decide whether something is age appropriate). If they want to buy something that requires safety equipment (e.g. a skateboard), they need to factor in that cost too.
- With teenagers (especially girls), you’ll still want to have the final say about clothes. Pam Whitlock (mom of four) at Moneytrail says that her teenagers know that the family has a policy of not removing the tags from clothes until they have parental approval. “If the tags are off and it doesn’t pass approval, then they have wasted their money because the clothes will be donated.” The same goes for video games.
So, what should your children be financially responsible for? Here are some suggestions but remember that you can always pick and choose what works best for you, your children’s age and personalities and your family’s financial situation. Just incorporate the guiding principals above and you’ll be introducing a great financial teaching tool into your children’s lives.
Elementary School Age
- Toys. Parents now only buy toys for birthdays and the holidays. Anything outside of that, the child needs to pay for. I have to say, this is one of my favorite parts. Now, whenever my kids ask for something, I just have to respond: “You have an allowance. Your choice if you want to buy it. Do you have enough in your account?” It’s amazing (and rather gratifying) how often my boys will decide that they don’t want something after all. They’ve also learned to research their bigger purchases by reading consumer reviews.
- Video games (subscriptions or purchases)
- Food and drink outside the home – of course, we still pay for family meals out, ice cream at the beach, etc. Our boys are responsible for snacks outside the home. And if we’re eating at a restaurant and Z and I are drinking water, the boys have to choose whether to pay for their own soda or save the money for something else.
- Lost clothing/equipment – we’re trying to make sure that the boys take better care of their belongings so we’ve told them that if they lose sweatshirts or water bottles, etc, then they will need to replace them.
- Some breakages – the boys were mucking around in the summer and broke my sunglasses. They had to pay for new ones for me. Michael also broke a library book so had to pay for that. Accidents happen so it’s important that they experience the consequences and learn to take better care of things.
- Charity donations – we don’t force our children to give money to charity. It’s their money and we want to leave that up to them. Both of them have independently decided to allocate a portion of their allowance to different causes.
For older kids, I asked Pam and also Bill Dwight (father of five) at FamZoo for advice as we haven’t reached these stages yet. They had some great recommendations:
- All of the previous items from above
- Cell phone plans (if your child has one)
- Cell phone insurance – Bill’s son dropped his phone and learned a valuable and costly lesson about when it’s smart to buy insurance
- Cell phone overages
- Entertainment & outings with friends
- School lunch budget – Pam had two very different experiences with her daughter and eldest son over lunches at Middle School and there’s some great advice on her blog here.
- Extra activities or trips – These trips can really add up so Pam and her husband gave their son the option of receiving a loan for an optional trip and then paying them back.
- All of the above
- This is where you can really get into opportunities for budgeting, providing lump sums for clothing and school supplies so that teenagers learn to deal with larger sums of money over multiple purchases over several months. Bill has some great advice about his family’s experience here.
You can see how the allowance changes as kids mature. You can introduce more responsibilities and larger budgets over time. The hardest part is keeping quiet when you see your child making a bad spending decision. But it’s those lessons that will be the most memorable. And you want them to learn with $50 or even $200 mistakes while they are young rather than a $50,000 mistake later, right?
What does your child have to pay for with an allowance?