Show me the money – Part 1

Is it time to give our kids an allowance?

Our 7-year-old wants money. Lots of money. Our money.

For candy. For Lego. For Kinder eggs. For little beanies babies. For big-ass beanie babies. For her own battery-operated mini Ferrari.

We’ve been planning on giving our kids an allowance (pocket money for the British) for some time, but I wanted to put some thought into our process before starting. And by thought, I mean meticulously planning every detail. Mrs. Chaos is unreasonably annoyed that this process has taken several months. I keep telling her that you can’t rush greatness. To be fair, she’s still waiting for the greatness.

And now that all thinking / discussion / disagreement is complete, yesterday was our first pay day. The questions below set out our thinking around how we will navigate allowances for our kids. Working title ‘Getting Fleeced by your Offspring, version 1.0’. Hereafter known as GFO v1.0.

Why should we give them an allowance?

An allowance is a great way for kids to learn about money. And to learn lessons the hard way when it doesn’t matter, so they don’t have to learn them when it really does matter. This is the noble reason to give kids an allowance.

If a person gets his attitude toward money straight, it will help straighten out almost every other area in his life.

Billy Graham

The less noble reason is so that I can tell them to use their OWN money to buy the worthless plastic tat (British term for useless crap) they have decided that they cannot possibly exist without. Though technically it is still my money. But telling them to use their own just makes it slightly more palatable than listening to the whining.

The million-dollar question – is the allowance linked to chores?

For Mrs Chaos, this was not even a question worthy of being asked. OF COURSE the allowance is linked to chores. It teaches kids the benefit of hard work and that money is earned. These are critical lessons to learn, but there are other ways of teaching these principles…

So our answer is in fact, No.

In version 1.0, we are de-linking allowances from chores.

So why not tie allowances to chores? Well being ‘part of a family’ means having to contribute, even if there is no compensation. We most definitely do not receive an allowance for cooking dinner or transporting our minions to all their activities (unless Mrs Chaos has been pocketing my share behind my back).

Our kids have chores to do because they are part of a family. These include chores with personal benefits, such as putting their dirty clothes in the same zip code as the laundry basket. As well as chores that benefit the family, like setting the table for dinner.

I’ve also spoken to a few friends whose kids have decided they aren’t compensated well enough for doing chores and have therefore chosen NOT to do them…

I don’t want our kids choosing this as an option.

If we link allowances to chores, and they don’t do their chores and receive no allowance – they will miss out on the money-managing-learning experience. And it is critical that they learn this aged 11 with $11, rather than at 19 when they decide to ‘invest’ their student loan in a sports car.

GFO v1.0 plans to include occasional one-off jobs where our kids can earn extra money and learn the benefit of hard work. And we can get the garage spring cleaned.

I suggested to Mrs Chaos that GFO v2.0 should allow me to charge the kids if I have to do their chores for them. Mrs Chaos didn’t say anything. I looked up the user manual and apparently the look she was giving me meant ‘no’. Perhaps by version 3.0….

Chores (and making your offspring actually complete them) is a huge area to cover by itself and something we’ll start to dig into in another post.

How much are we going to give them?

An allowance should be enough so that our kids can buy something they really want if they save hard for two or three months.

If they get too much allowance and don’t have to save, then they miss out on some key lessons around delayed gratification. (i.e. patience / anticipating is often half the joy / snap decisions are usually poor decisions…)

But too little and our kids may not have the stamina to keep saving.

We’ve decided, after consulting with our kids, to give them an allowance of 50c per week multiplied by their age. So $3.50 for our 7-year-old and $2.50 for our 5-year-old. They love Lego and a modest set typically costs about $15 – $20. So if they can save $2 each week, they can have enough for a Lego set in about 2 months. And we love Lego though the Millennium Falcon may take them a little longer to save for.

We’ve moved a lot this year and have transitioned between US dollars, British pounds and Euros. Rather than confuse with currencies at this stage, we’ll pay allowances in the currency of whatever country we are living in – and the buying power of each of these currencies is not dissimilar (thanks to Brexit, not that I am bitter about the reduced buying power of our UK investments…). We’ll offer to exchange these currencies on a one-to-one basis. That is until our eldest figures out currencies and tries to launder money through us.

How often and what’s the process?

Our kids work well on a weekly schedule – they understand days of the week and that certain things happen on certain days. They haven’t quite figured out months yet. So weekly it is.

My daughter thinks I’m a poor credit risk. She doesn’t want bits of paper that say I owe her $x. She wants to see the money.

via GIPHY

But that’s okay with me. It’s important for kids to handle money and to get used to different coins and notes – and counting it is great math practice. But it does mean planning ahead and making sure I’ve got bags of coins set aside for pay day. I plan to hit up the bank for a couple hundred 50c coins, it’ll be nice to feel loaded for a ‘change’ (Note: this was Mrs C’s edit – I had nothing to do with it).

Atomic Habits is a great book by James Clear that sets out strategies for building habits – like getting into the habit of paying allowances. One of the tactics he suggests is habit stacking – the idea of adding new habits to strong existing habits. In our case, on Saturday mornings (only), our kids are allowed cereal with some ridiculously-high-sugar-content (we can make a box of lucky charms last a month) – and we never forget this as they start reminding us several days before. So we’re going to stack the payday habit onto Saturday breakfast.

How can they spend it?

With all this cash comes great responsibility… There are going to be three ways in which our kids can use ‘their’ money – SPEND it, SAVE/invest it, or SHARE it.

I say their, but really it’s still mine. So I get to be (a little) prescriptive.

It’s important to learn how to do all three, not least because as we are trying to avoid raising materialistic little narcissists. So each of our kids will have money boxes for spending, saving and sharing. They’ll have to put at least one 50c piece into both the saving and sharing boxes each week (because I say so). But then they can each decide where they want to allocate the rest of their allowance.

Forcing the saving and sharing boxes is a little artificial and takes some of the control away from them. But the upside is that they’ll experience the joy of sharing their money, the benefit of delayed gratification, and the magical power of compound interest.

The sharing money bucket will be flexible and will cover things like giving to charities / church / people in need, buying presents for friends or even taking their grandparents out for coffee.

The exact mechanism of 3 money boxes for each kid is still a work in progress that I am leaving to Mrs Chaos and Pinterest. But if you don’t have the skills/time to handle a glue gun and some plastic jars (not glass, we are not crazy) then Amazon has several slightly overpriced answers including this one.

Our current place holder is these Lego boxes our kids built yesterday, which had the advantage of keeping them busy for a couple of hours.

How will we encourage saving?

Saving is key to buying freedom and is a core lesson I want our kids to learn. One of our kids has the attention span of a goldfish with ADHD. If we rely on an annual interest rate of 2% to ‘encourage’ him to save, he’ll spend every single penny on whatever trinket is in his line of sight the moment the cash is in his hands. To encourage saving, we will be paying a monthly interest rate of 5%. (Saving $2 a week would give a smart kid an additional $45 in compound interest by the end of the year. Before you ask, No, we will not offer this rate to anyone else.) We will reduce the rate as the kids get older and their savings increase. 

We will also ask our kids to draw a picture of the thing they are saving for and stick it to their saving jar. That will be a very visual reminder every payday when they are allocating their coins between jars. The sense of achievement of saving for something themselves should mean they value that toy just a little bit more.

There were some ‘encouraging’ signs at lunch yesterday that the discussion on saving had been understood a little too well. One of the twins announced he would not be eating his green beans as he had decided to ‘save’ them instead.

Will we discourage spending?

Not really. Maybe a little, depending on just how big / useless the piece of plastic crap is. But ultimately there are lots of important lessons to be learnt around spending. Like differentiating between ‘needs’ and ‘wants’. And once you’ve decided to buy something, how do you do so in the most efficient way.

I also want to teach our kids to track their money and one of the conditions of receiving their allowance is that they track how they spend it. I’ll help with this, and no doubt there will be some interesting lessons to share with them along the way (e.g. if you hadn’t bought 157 plastic fridge magnets with faulty magnets, you could have bought this awesome Lego set for dad yourself).

Too many people spend money they haven’t earned, to buy things they don’t want, to impress people that they don’t like.

Will Rogers

Will we bail our kids out?

No. Next question.

For further clarity that means NO:

• random candy buying – you buy your own (and eat it on Saturday)
• topping up to help you buy something more expensive than what you can afford
• advances (even if I would like to charge them pay day loan interest rates) – our kids are most definitely a credit risk!

What about kids who can’t count?

Our 3-year-old agents of chaos, I mean, little angels, are a little too young to understand money (Chewy insists on beginning every counting sequence with nine). They think that buttons and scrap paper are legal tender. When I spoke with them about allowances, one of them was delighted at my suggestion that he receive ‘shiny shells’ instead of money.

To be fair, the other twin was distraught when I suggested ‘shiny shells’ and demanded cold hard cash. The slight worry with him is that he wants to buy fire sticks. Not sure if I should worry more that he likes fire, or that when he says ‘fire sticks’, he means sticks that smoke, i.e. cigarettes …

We will give them a token coin on a weekly basis that they can spend as they like. When we feel they are ready, we’ll move them onto the full allowance program (version 7.13 or whatever it has evolved into by then…).

Future developments when our kids are a bit older?

There are a few things we will amend when the kids get closer to high school age.

• Moving away from physical cash. There are many apps for tracking allowances or automatically transferring funds into kids’ bank accounts. One app that was recommended to me repeatedly was Rooster. Though I have not used this myself
• Significantly increasing allowances whilst handing them responsibility for more of their costs – like cell phone bills, clothes, haircuts and entertainment. This is not intended to increase our costs, just to transfer management of money we would spend on our kids over to them. Though if any of our boys decide that deodorant is a ‘want’ rather than a ‘need’, then there may be some government intervention…
• Setting up bank accounts with debit cards so that kids can get used to online banking, using cards and managing a bank account
• Paying allowances monthly so that they can learn to budget over longer periods of time
• Encouraging their entrepreneurial spirit to set up their own businesses
• Saving and investing for the longer term

I’d love to hear your perspectives below in the comments. What has gone well for you, and what hasn’t gone so well? If you’d like to start with giving your kids an allowance, but haven’t yet, what is holding you back?

I’ll post periodic updates on how the allowance system is going/failing (what version we have reached) and what our kids are spending their money on – or more hopefully, what they are saving it for!

If you want to find out how it’s going, you can read an update on the first two months HERE, and our six month review HERE!

Before you speak, listen. Before you write, think. Before you spend, earn. Before you invest, investigate. Before you criticize, wait. Before you pray, forgive. Before you quit, try. Before you retire, save. Before you die, give.

William A Ward