Using allowances to teach kids about money

Do you give your kids an allowance? Do you pay them for chores? Do you hand them spending money? Do you tell them to just freaking start a YouTube channel already and make us all rich?

As with all things parenting, there are strong opinions for and against every option, most boiling down to “because my way will produce responsible, functioning, well-adjusted children and your way will produce monsters.” In the FI community, there’s an additional “my children will be rich and responsible and yours will be spoiled/entitled/deadbeats.” Most of the time, I’m just trying to keep afloat, but so far, my kids aren’t deadbeats, so it’s a win.

We’re doing allowances. I think it’s important for my kids to have their own money so when they say “can I have an LOL Surprise Doll” I can say “yes, if you pay for it,” and they can have a sense that ten bucks for that bullcrap is bullcrap. We start when they are 4, which is too young for them to understand money but not too young for me to say “you don’t have enough money so no.”

When we were thinking about how to do this, I had several principles that I wanted to keep in mind. First, I wanted to buy an actual bank. I know, it’s not frugal to buy a box to save money in – why not just save it in an envelope? But for my kids, a special bank helps them to get excited about the project and take it seriously. So we bought banks.

Second, I wanted to get them in the habit of saving, spending, and sharing. Lots of piggy banks have these separate sections built in, so setting it up was easy. I decided to give them $6 a week – $2 for each section. This allows for the money to build up relatively quickly, but doesn’t destroy my own budget (sometimes it feels like it is destroying my own budget).

I did a bit of digging around and found some on Amazon that fit my purposes (affiliate links ahoy: I signed up for affiliate links!). Sonya’s is this one: Moonjar Classic Save Spend Share Tin Moneybox.

Viv’s is this one: Giantsuper Smart Piggy Trio Bank: 3-in-1 Money-Wise Educational Piggy Bank.

Both are pretty good. Sonya’s is hard plastic and so seems more stable, Viv’s boxes close with magnet clasps, which is like so satisfying. Sonya’s rubber band holding the whole thing together eventually broke, so we put another rubber band on there. Holy crap we’ve had that bank for five years now, of course the rubber band broke.

This system has worked out really well for us – once they’ve built up some money, I let them choose a charity to donate their “share” money to. They’ve consistently chosen the World Wildlife Fund, where they can “adopt” an endangered species and get a stuffed animal in return. Once they got about $50 in their “save” fund, I took them to the bank to open up a bank account and put it in. Brick and mortar bank accounts have interest rates of like .0000000000000000000000000000000000000000001%, so the goal is to get that experience, then take that money out of there and invest it.

I think the smart thing to do is to move it into an Index Fund, but so far, what I’ve done is let them choose some stocks through Robinhood (completely free stock trading – sign up here and you get a free stock, and so do I). The kids had a great time choosing companies they wanted to support (“who makes Barbie?”), and I just checked it and their choices have gone up 10% over the past year. So, it beat the tar out of the interest they would have gotten in the bank.

Benefits: My kids aren’t deadbeats. Sonya wants to save up to buy an iPod, and has a good sense of waiting for your savings to grow before buying something. When the kids want something dumb, if I say “no,” they say “pretty pleeeeeeeease” and then we get into a fight, but if I say, “save up your money for it,” they usually say, “eh, I didn’t want it that badly anyway.” They have a decent sense of providing for other people/animals, and they are super excited about savings.

Drawbacks: I mean, with just two of the kids doing this, it’s $50 a month. Fifty bucks a month that I could be putting toward debt or into 529s. And Amelia’s going to be 4 in just a year and a half! It’s kind of a lot. Also, I never have cash on me, never ever, so it’s easy for me to forget to have the money on hand for it. It feels like Another Thing I Have to Keep Track of, which is my least favorite part about life.

Would my kids be better people if I paid them for chores? Would my house be cleaner? Would it have been better to start a YouTube channel and destroy their privacy and probably lead them down a path of drugs and destruction and early death but we could have all the LOL Surprise Dolls anybody could ever want (how many is that? Answer: zero.)? Should we have just decided to live off the grid and eschew consumerism altogether and if they wanted money tell them to set up a barter system amongst themselves with pieces of bark and leaves?

I mean, nobody knows. But our way is working out okay so far.

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