Allowance vs. Paycheck: My Feeble Attempt to Teach Kids About Money
After years of reading articles that reinforce how critical it is to teach our children about the importance of using money wisely, and after hearing many experienced parents describe how their brilliant and creative allowance programs transformed their child into a mini-Warren Buffett, I decided to start a system of my own.
Please don’t think that this is an attempt to brag about my awe-inspiring methods of teaching youngsters about money. It’s not. To be frank, my system was born in a fit of concern that my children would grow up unguided in the ways of finance without my timely and immediate intervention. In fact, even as a wealth advisor by trade, I’m learning as much as my kids are in this endeavor.
So here’s my program: On the 15th and the last day of each month, I give my two older children, ages 7 and 6, a small “paycheck.” I call it a paycheck, rather than an allowance, because they must earn it by willingly completing their chores and tasks. I say “willingly” for two reasons: I want to teach them the value and rewards of their work, and I want the overall experience to be somewhat relatable to real life. Think about it this way. If their old man were to complain, whine and curse the fates every time he has to harvest tax losses or rebalance a portfolio, he’ll get canned (and rightfully so). On multiple occasions, my kids have had their paychecks docked, and a time or two they’ve lost it entirely. In the interest of full disclosure regarding the emotional hazards of my system, the resulting conversation went something like this:
Me: “Son, I’m real disappointed that you didn’t do your work. As a consequence, you don’t get a paycheck this time around.”
My clearly very grief-stricken son: “OK, daddy. Can I go play now?”
I’d like to think there was some semblance of a lesson learned there.
Each pay period, my children must allocate their earnings among three containers: charity, savings and spending. In order to provide some fatherly guidance regarding financial responsibility and help instill in them our family’s values concerning money, as well as to encourage some discipline, I require them to allocate at least 10 percent to charity and 20 percent to long-term savings. The remainder can be allocated however they choose. As long as they’re motivated to give and save first, I figure they can blow the remaining money in whatever fashion their young minds desire, as long as the cash is available (no debt).
Then things got interesting. After the contributions to charity and savings, my daughter would still allocate the remaining 70 percent primarily among the “charity” and “savings” categories, with a bit left over to put in the “spending” container. Sadly enough, I found myself inwardly questioning my daughter’s overly altruistic tendencies. Perhaps, I’ll admit, I thought my daughter (who is, I had to remind myself, only 7 years old) was being too naïve with her money. “Hmmph,” I’d reflect to myself. “Doesn’t she realize how long it will take her to purchase that Barbie digital camera at this meager pace?”
My son was the diametric opposite, feverishly dumping the remaining 70 percent of his paycheck into the “spending” container. “Hey dad,” he’d say excitedly, “how much longer until I can purchase that Batman Lego set?!” Secretly, I was pleased. After all, hadn’t he already done his duty by giving and saving a predetermined percentage of his paycheck? It became quite clear to me that how I wanted my children to view money was a bit different than how I actually viewed it myself. Yes, those of us conditioned to view money through a certain lens may have much indeed to learn from the choices of our children.
I have found this paycheck program to be an absolutely invaluable educational experience for my entire family. My children now have a better understanding of the value of a dollar and the importance of giving and saving. What’s more, it teaches them something about the foundational principle of not spending more than you earn. The other day, I asked my daughter what she had learned from our family’s system. In what I thought was a pretty insightful observation, she told me that she’s learned you put money “where you want it to go, not just in some random spot.” When my children wander through the toy aisles at Target, it’s priceless to hear one say to the other, “You can’t buy that – it’s too expensive!” Or, “Daddy, can I afford this Teenage Mutant Ninja Turtles Secret Sewer Lair Playset?”
Why don’t you try a similar program? The amounts and percentages of any “paycheck” system you come up with aren’t as important as the values that you want to impart to your children. By implementing a program of this type, in addition to preparing your kids to navigate the potentially rocky path to personal financial security, you are almost certain to discover something about your own relationship to money.
Now, if you’ll excuse me, I need to calculate how much time before I’m able to purchase the Return of the Jedi Ewok Village Lego set.
The opinions expressed by featured authors are their own and may not accurately reflect those of the BAM ALLIANCE. This article is for general information only and is not intended to serve as specific financial, accounting or tax advice.
© 2015, The BAM ALLIANCE