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Kids and Money: How to Structure an Allowance

Do your kids get an allowance?  If so, how did you set it up and what – if anything – is it tied into?  Do you find it is working for you or are you still having to play ATM more often than not?  And do you feel like you are setting your children up for financial success in the future?

Undoubtedly, you have heard what this Zen Mama Wannabe has heard from the money experts in regards to giving children an allowance.  Most experts say it should NOT be tied into chores, that children should do jobs around the house because they are members of your family – not because you pay them to.  Because, as they point out, what happens when they decided it is not worth it to them?  That they would rather NOT feed the dog or take out the trash this week?  Oops – now you have got a bit of a problem.  Better for them to just get a set sum of money each week so that they can start learning how to manage and save. 

But last night on TV I heard a leading money expert give an alternative view for allowances that was rather though-provoking.  She said she went around and interviewed kids on why they received an allowance and the answers were like, “Oh, because I was born.” or “I get one because my brother Ben gets one.”  Talk about a sense of entitlement.    Should you get paid a certain amount each week simple because you exist here on Earth?  Really?  How can I sign up for that plan??!

Instead, financial guru Suze Orman said money needs to be earned.  She based her advice to one mother on the national minimum wage, which is $6.50 per hour.  That breaks down to around 10 cents per minute.  So if you were thinking of paying your child $20 per month (for example) that translates into about 4 hours of work around the house per month, or 1 hour a week, etc. 

She said parents and children should sit down together and come up with a list of jobs that kids will be paid for.  Those jobs should be whatever the parent decides would make their life easier.  Could it be a routine task like making their bed and keeping their room clean?  Sure – if that is something that helps YOU as the parent.  If you think that should be done anyway (money or no money) then don’t put it on the list.  Create the list on what works for you and your household, and what contributes in some way to making YOUR life a bit easier. 

Here is where the good money lessons come in.  If they are doing a fabulous job keeping their room clean, cleaning up the dog poop, and sweeping the front steps and walkway, then maybe you might want to consider giving them a raise.  If they are doing a lousy job, they might get a decrease in salary.  The lesson, Ms. Orman says, for them to understand is this:  “Good work equals good pay equals job promotion.  Bad work equals getting fired.”  After all, isn’t that how the real world works?  What a powerful lesson to teach kids before they even go out and get “real” jobs! 

Perhaps you have your basic list of chores you feel your kids need to do around the house as members of the household.  They do them because they are part of the family and everyone in a family needs to pitch in a bit.  But then there is the list of jobs they can do – at 10 cents a minute – to earn money to buy those extra things they want.  The things that you are not going to be buying them because as parents we understand what a horrible situation we are creating when we just BUY BUY BUY for our kids.  Truly, we must understand we are not doing them any favors.

Oh, you say, 10 cent a minute would never work – they wouldn’t make enough money to buy the things they want.  Well, you could pay them more per hour (it is your house, your family, your rules) but you might want to take a moment to consider this:  the minimum wage is $6.50 an hour.  As a teenager going off to get a job, what is your child going to do to earn MORE than the minimum wage??  The smoothie store, the coffee shop, the hip clothing boutique, swim lessons at the community pool…..those are the typical jobs for teenagers and the salaries for those positions are all about the same – minimum wage.  What would their incentive be to get a job if they get MORE money from you?  How are you preparing them for life after school, or even life during school (college is getting more and more expensive, and many families are finding it necessary for their kids to help supplement – at least with spending money).  Yet how or why would your kids do that if they have always gotten juicy handouts from you?

With these tough times in our nation’s economy, we have an opportunity to do things differently with this next generation of kids growing up.  We can use these happenings as a chance to talk about money, living within your means, and actually saving up for something and having the money in hand when you walk in the store to buy it.  Shocking concept for many.  Kids are walking around today with cell phones and iPods, wearing True Religion jeans and carrying designer handbags.  Parents think their kids need to have at least what the other kids have (and certainly more than what THEY had growing up).  But how would they know that their daughter’s best friend’s parents are maxed out on their credit cards, behind in their mortgage payments, and under huge financial strains because they have been living beyond their means?  They just know Lucy has the new iTouch and $200 tickets to the Jonas Brothers concert so that means their daughter needs to have them too.  And we wonder why our country is in such a financial mess?

In our household, we do not do allowances – yet.  We thought about it – because my son’s friends were doing it (gotta keep up with the Jones, right?) but we never put anything in place.  I needed it to be set-up in a way that made sense – $1 for every year of age reeks of that entitlement issues I am trying hard to avoid.  Another reason why I think Suze Orman’s way sounds intriguing. 

My husband remembers vividly at age 13 wanting a new stereo. He researched and analyzed (as only he can do) until he figured out exactly what he wanted and how much it would be ($300)!  His parents told him for every dollar he put in, they would match it.  He worked hard doing extra chores and cleaning neighborhood houses until he finally earned his share of the money.  His father thought he was crazy for spending that much money on a stereo – but it was a purchase that was well thought out and one he worked very hard for.  His parents could have just given him the stereo – but in listening to him tell the story, after all these years, I could hear the pride in his voice for how hard he worked.  It meant something to him – something just being given a gift could not.   Talk about valuable lessons learned!  And after all, isn’t that what we are after with our own kids today? 

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2 Responses to “Kids and Money: How to Structure an Allowance”

  1. callieandbatido Says:
    October 23rd, 2008 at 3:14 pm

    I will be very interested to hear what everyone else is doing about allowance. I have tried several different things over the years. My kids are 10 and 14 and currently do not get allowance. They do have a list of chores they do around the house that help ME and the whole family run smoother. My older daughter baby sits, although not that often. Last Friday she babysat for 6 hours and made $50. Heck, I would have babysat for 6 hours to earn $50 bucks!

    Both girls get $10 sent to them from their great grandmother each month so they do have an income coming in. I struggle with this but it comes monthly anyway.

    I think that it makes so much sense to teach them now, especially in this economy, that nothing is free. The idea of working hard and earning more for their hard work is a life lesson we all need to learn. I know that when I did pay allowance, I often paid it if the job got done, even if it wasn’t done well, just because I was too tired to battle it. I see now that I was depriving them of a valuable life lesson.

    The years of entitlement have gotten us in a tight spot and keeping up with the Jones’ isn’t so easy anymore. And I have come to learn that the Jones’ aren’t the people I want to be hanging out with after all.

  2. LarkLady Says:
    October 23rd, 2008 at 4:08 pm

    Our girls ar now 18 and 14, a freshman at the local jr college and a sophomore in high school. The older no longer gets an allowance: it was cut off at the end of the month she graduated from high school (she turned 18 the month before that). She works part time and goes to school part time. She’s never been good about saving money but is now getting better — the motivation of wanting a car is helping!

    The younger still gets an allowance, paid twice a month. From that she is expected to tithe: 10% off the top to the church or to charity (her choice)… and she is expected to save 25%. With her, that’s no problem: she’s the family banker (and she makes us sign an IOU if any of us need to borrow some cash!) She babysits sometimes, but the downturn in the overall economy has cut into that — the people she sits for don’t go out as often. At 14 she’s too young for a “real” job.

    Allowances haven’t been tied to chores, but that isn’t to say they aren’t expected to do things around the house. They each have a (short) list of things that are their responsibility, and other privileges can be and are taken away when they don’t follow through. The allowances aren’t generous, I admit: enough to see a movie or go out with friends to McDonald’s; anything more and they have to save up for it or use money from other sources.

    We don’t keep up with the Joneses or even the Smiths. I guess we instinctively knew we couldn’t win at that game and so chose not to play. On the other hand, some of their friends don’t get allowances at all, so they aren’t on the bottom of the heap, either.

    It’s worked for us.

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