Conversations about money can be awkward. But, having uncomfortable talks, at age appropriate times, will set up our children's essential, lifelong skill in handling money well. Allowance is a key tool to teaching these money management skills.
Money, along with politics and religion, is often considered impolite conversation to have outside of yourself & maybe (hopefully?) your spouse. How much do we spend on groceries, gas bill, or date nights? Is this car payment normal? We are often afraid, or at least reluctant, to compare any of these details… R. Paul Stevens said the proverbial fig leaf from the Garden of Eden has moved from our naked bodies to our bank accounts.
Add kids into these conversations, and there is an additional layer of hesitancy: kids can be notorious loud-mouths! As a friend of my daughter’s said once to me (age ~8), “My parents won’t tell me who they are voting for, or how much a shirt cost, or how much they paid for our house — they say that I will tell everyone at school!” (Her parents’ theory seemed to be confirmed by this very conversation 😏).
But, if we are hoping to set our children up for long-term success in life, money is one of the absolute, unavoidable, high-impact factors essential for functioning. Teaching children about how to handle money well should have a central role in parenting.
Talking to our kids about money is awkward
Some (good) reasons to not discuss matters of money with kids:
- They don’t get it
- Finances are complicated and nuanced
- I don’t want them blabbing about our financial situation to others
- They will ask me for more stuff
- They will feel guilty or uncomfortable that they are a financial burden
- Money is not the central focus of life, and I don’t want them to think it is SO important
- It feels private and I don't want to talk about it
Straight up: there are many legitimate reasons to avoid these conversations. Like talking about "the birds & the bees", there is definitely an element of pushing through discomfort to make it happen.
Some (better) reasons TO discuss money with kids:
- They will deal with money in one way or another nearly every day for the rest of their lives
- I want to develop character traits of generosity, gratitude, prudence, delayed gratification
- I don’t want them to be crushed by debt in adulthood
- Early adulthood — when their pre-frontal cortexes are not fully developed — is a bad time to be “baptized by fire” in financial education
- Kids do actually witness our engagement with money; talking about it allows me to shape the conversation, not leave it up to their assumptions
- Money is not the central focus of life, so if they learn how to manage it well, it won’t have to be SO important
Learning to Earn Money vs. Learning to Handle Money
In our family, we have tried to go in without fear, to be brave about the discomfort of money — of our wealth, our lack, our choices, our limitations, our opportunities. The lens by which we approach this topic focuses more on what to do with money you have, rather than the process of earning money.
Why?
- We will all receive money, one time or another, that we have not strictly earned. A birthday gift, an inheritance, a lottery, a prize, $20 we find on the street, government assistance. Money to manage is a guarantee in this life.
- People with massive incomes can still be poor; learning to spend less than you earn or spend only what you have is more of a determinant for financial stability than earning power.
- Being generous, and a loose-handed attitude to money, is important value to us
- Few people ever feel like they have “enough” money, anyways; so, while earning money is part of the financial education goal, handling money is a skill that can more easily be completed or "mastered".
Different Approaches to Allowance for Kids
I have heard of many different approaches when it comes to giving allowance:
- Start early, as soon as they won’t eat the money (a line from Barbara Coloroso's Kids Are Worth It)
- Allowance totally unrelated to chores
- Allowance paid commensurate with chores
- Allowance paid with certain, basic expectations fulfilled (e.g. clean room), with extra chores paid out at an additional $ rate
Which way is a parent to go?!
We settled in our home on the no-strings-attached approach to allowance. There are no specific chores that are necessary to earn allowance (though there are certainly chores that are necessary, just unrelated to payment). For us, learning to handle money is the chore; allowance is a tool by which we teach this skill.
School age felt like an appropriate time for us, as there are financial asks that create a natural transition, such as school events & field trips; this is also when we saw math develop as a skill, and dealing with money both built on, and bolstered, that learning.
Our kids are required to pay for gifts for other people in our immediate family. That is, for birthdays, Christmas, Mother’s Day etc. — though they certainly don’t need to purchase a gift; sometimes they give a card or homemade gift. Their other financial responsibilities are school extra events, like: movie nights, holiday dances, field trips, club fees, etc. I don't have hard-and-fast rules about breaking something around our house and needing to replace it, though they have needed in the past to contribute to this kind of thing.
We began by giving our kids money at the beginning of the month when they were school aged. They are required to give some money away whenever they receive some. I use 10% as a general minimum, but often their "give" money is more than that, and we encourage generosity & open-handedness.
They can use money for candy, books, toys, or anywhere else their imagination leads them (which isn’t very far!). Also, they are limited by access — for example, us taking them to places where they would be able to spend their money.
What We Learned from Giving Our Kids Allowance Very Young (#regrets)
Simply: They spent more money, ate more candy, and wanted more “stuff”.
Our first attempt at allowance began when the kids were very young (more like Barbara Coloroso's "when they won't eat it" phase).
Our baseline at the time was not really spending money in general, and particularly, not buying things for our kids. So, when we began to give them access to money, it did, as expected, give them more agency. It also gave them a desire to spend the money, and seek an outlet for their consumption. And what does a 5-year old want, but junky, low-price toys and candy?!
My initial thought was that giving them a budget, and agency to spend the money, would mean less asking (“can I have a package of Skittles?”) and therefore less of me having to say no. Because they would be in charge of the money that would go towards those purchases (and it was limited; maybe $5 a month), instead of asking me, they would just know if they had the money, and could choose whether or not to spend it, without involving me & my negativity ;)
In actual reality, what happened was that the ask simply shifted from being an ask about buying candy to an ask about taking them to the store. $5 may not be much money, but it sure can be stretched into a lot of trips to 7-Eleven, if you only spend $0.50 each time! Since I didn’t want to indulge a candy obsession, and mostly found it inconvenient to take them to these places (and they were too little to go themselves), I found I was saying “no” at least as much — or more — than I was before. Bust.
Little ones also change their minds and their desires so quickly; there isn't the same value of long-term saving towards something they want, because this is a frequently shifting target.
Allowance and Teenagers
When I first wrote this post, our older kids were 8 and 10. Now they are 14 and 16, and their desires, needs, & expenses have changed notably!
Kids have little opportunity to make money, but also little need to spend money. Teens have more opportunities for expenses — snacks & eating out with friends; activities, concerts, fun; more expensive or trendy clothes; etc... the list can go on — but, they do have more opportunity to make money through jobs, babysitting, neighborhood chores, etc.
We still provide a monthly allowance, but we also provide a clothing budget for our teen girls. This is a specific dollar amount over a 6 month period, and everything clothing-related falls under it, from winter coats to soccer cleats. The motivation here was that the needs vs. wants conversation was coming up every single time with clothing, and as a parent, I didn't want to have to consider arguments and render verdict every time. We landed on an amount based on what seemed reasonable, taking into consideration the change in seasons, the gift potentials (over birthdays or Christmas) etc.
Giving our teenaged daughters autonomy to choose their clothing purchases from a set budget has been the most successful financial experiment we have tried. It encouraged so much comparative valuation (do I want to get new shoes, or can I find some good ones used and have money left for a new sweater), without impacting other life decisions (should I go out with friends or buy new underwear).
It has been a balance of helping them to judge and value their options, without giving them authority in areas where their undeveloped brains will not make long-term choices. For example, we want our kids to be physically active and kinaesthetically literate, so we pay for sports & athletic activities for them. Nobody is particularly passionate about anything, but they enjoy them. If I said, "You have to pay for this activity", I think they would likely prefer to not sign up and buy clothes instead. It's an ongoing learning process, for them and for us.
Teaching Kids (and Adults) About “True Expenses”
This was a personal lesson that took me a long time to fully embrace. My husband & I, in our early marriage, would get our shared credit card bill each month and we would justify what our “actual” monthly expenses "would normally” be. This month it was higher because of that milestone birthday gift/event, but "we wouldn’t usually have that expense"… This month was higher because we paid the registration on our cars, but "we wouldn’t usually have that expense"…
It took embarrassingly long before we acknowledged that it was almost without exception that every month had something that was “out of the ordinary”, but in a sense, totally predictable.
As a now-responsible-money-person, and YNAB user, I have come to be at peace with the concept of “True Expenses”. They aren’t the first obligations, the lights-will-go-out-if-I-don’t-pay-this-bill expenses, but they are expenses that need to be anticipated and accounted for: gifts, haircuts, clothing, Christmas expenses, maintenance, around-the-house expenses (lightbulbs, batteries, mousetraps, that sort of thing).
For my kids, I put some of these categories within the expectation of their allowance-paid expenses, so that their “spending” money isn’t squarely for leisure. For them, it looks like: gifts, regular events, field trips, maintenance (sometimes breaking something that needs replacement).
It’s Not Too Late For Me
As our kids learn about money, we hope to learn along with them. My husband & I both grew up in financially sound homes, but we want to build an even better education for our kids. Too many years of our adult lives have been spent with our heads in the sand: being frugal, hoping for the best, but not really engaging with this valuable tool of money.
Like the blood in our veins, we can’t live without it, but we certainly don’t live for it.
As a tool, it is something we can learn to use, and use well. If we don’t, it can be the thing that uses us, not the other way around.
I’ve seen kids grow up very savvy & prudent about money. And, I’ve seen wives whose husbands have left and they don’t even know how to do any banking. I’ve remarked above that it isn’t too early to teach kids about handling money, but also: it’s never too late! The best day to plant a tree was 20 years ago, but the second best day is today.
What do you have to share on the subject of money talk / kids / allowance, or anything else I’ve touched on above? Add your own comments below!
