Family Finance: Why we give an allowance (and how we do it!)
I've connected with an amazing community of people focused on finances since starting Mindfully Spent. One topic that comes up periodically is how our individual relationship with money starts early. As kids, we absorb the ways our parents managed their money and, for many of us, this sets our standard for how financial things are done in the real world.
There are two things that stand out to me from these stories:
- There are many stories about people managing their money radically different than their parents (for better or worse), so a person's upbringing is not predestiny.
- Much of what we learn from our parents about finance happens passively: Many of us learned a lot by observing what our parents did, and not from proactive lessons or conversations about money.
Money is much too important of a topic to be taught passively. It may not be able to buy us love, but it definitely impacts almost every other aspect of our lives. When it comes to educating kids about money, it's important to have active conversations and hands-on opportunities to learn. Luckily, there are about 26,900,000 resources out there on this topic. Today, I want to bite off just a small piece of this huge topic and describe our approach to allowance.
Allowance: a surprising source of controversy.
There are passionate beliefs out there on the topic of allowance. Some parents are adamant that every dollar should be earned, while others strongly believe that every cent should be given without strings attached. Our family handles it a bit differently. Family Finance Favs tells us that we are among the 7% of households that take a hybrid approach: Half of the allowance we give is fixed and half of it is earned. You'll see below that each half is meant to teach an important lesson.
"We all give"
Fixed allowance & chores.
Part of family life for us is giving without an expectation of receiving. For example, my son takes out the recycling and the garbage for the household no matter what, and he does so with no expectation of rewards. We also place value on cleaning up after ourselves. Now that my son is older, this means that he does his own laundry among other things. As an example of unconditional giving on our end, my son is given $10 on my payday (every two weeks) for his allowance with no exceptions based on his chores or other performance.
"Parents as employers"
Variable allowance & chores.
While we use the fixed portion of our son's allowance to teach family values, being parents means that we are also in the unique situation of being our child's primary source of income. Each season my son has an extra chore he can do to double his allowance. During spring and summer, he gets an extra $10 on my payday if he keeps up on the lawn mowing.
Investopedia tells us that we are paying him less than "market" rate when we combine his fixed and variable allowances, but it's an amount that has worked well for our family. (Parental side note: no one told me when I was exhausted from chasing a toddler that I would be able to rely on my son to take on big household tasks for me a few years later. If you have young ones, hang in there!)
Sometimes my son sets himself on a mission to buy a something special (past examples have included an electric guitar, a particular style of desk for his room, and a paintball gun). While we do require that he saves some of the money from his regular allowance over time, we might also allow him to earn some of the purchase price by doing extra work. These chores are usually high intensity and include several hours of work. Because of this, special extra earnings didn't become an option until my son was old enough to tackle some pretty big chores. If we don't have extra work available, then we don't create it just so he can earn the extra funds. Similarly, his grandparents and aunt sometimes offer him paid work for large household projects.
The lessons that come after allowance.
Once allowance is earned, the lessons don't have to stop there. Allison of Happy Fox Studio Jewelry, told me how their family made their own "Moon Jar" at home, allowing their children to learn to divide their money between saving, spending, and charitable donations from the time that they were wee tots. In fact, charitable donations have been a family choice in their house since their first daughter was quite young.
Interested in hearing about how a variety of personal finance writers handle allowance in their households? Chris at Keep Thrifty has a great round up of ideas on allowance, including when to start and how much to pay.
The lessons we're called upon to teach our children can seem never ending, but we have the opportunity to teach financial lessons in small ways everyday. Whether its charitable donations, selling items we no longer need, setting a school clothes budget, or being smart online shoppers, there are many choices we make in the course of our lives that give us an opportunity to open up a conversation about money with our kids. Allowance is just one of these many topics.
Post photo cropped from an image by the glorious Scott Haydon Photography (Tacoma, WA).