Six months ago, we decided to give our kids money. More specifically, an allowance (pocket money in the Queen’s English). You may be wondering, given our
stingy frugal Scottish links, why we decided to give our kids an allowance? And are we regretting it?
Our allowance system
Here’s a summary of our system (LINK to original article):
Why have an allowance?
To help our kids learn about money, including making mistakes while it doesn’t matter. And so that we can tell them to use their ‘own’ money if they are bugging us to buy them something.
€0.50 per week multiplied by their age. Enough so that they can buy some cool stuff if they can exercise delayed gratification for a couple of months. For example, an 8 year old would get €4.00 per week (8 x €0.50).
Every Saturday morning at breakfast.
Cash or bank transfer?
100% cash. Our kids are young and need the visual incentive. Plus it helps them understand and count physical money.
How can they spend it?
Put something in each of sharing and saving, and then allocate the rest however they want.
Any loans / advances?
No, no, no.
How do we encourage saving?
Interest of 5% per month on their savings.
De-linked to chores
WHAT??? In our view chores are part of being in a family and deciding to forgo an allowance in order to avoid chores is not an option.
The good, the bad, and the ugly
I can’t believe that it has been six months since we started giving our kids an allowance. There’s a summary of how the first two months went HERE. But we have learnt just as much from the last four months.
What did they do with the money?
Before getting into what we’ve learned – here’s a table summarizing what our eldest two did with their allowance, starting with what they had four months ago. Mrs C did wonder if the reason I suggested giving our kids an allowance was so that I could set up another spreadsheet. She is probably right.
Kind of galling to find out that in six months we’ve paid out about €200 in pocket money and interest! And that’s just to the older 2!! There goes my budget for personal finance books…
The other income relates to money gifts from their grandparents. It’s not my place to highlight who the more generous grandparents are… But to be fair to Mrs C’s parents, they have got twice as many grandkids!
So what about the good the bad and the ugly. Rather than repeat what we learned in the first two months of this experiment (see HERE) – I’ll focus on new issues.
Allowances are still valued
I wondered whether the novelty might start to wear off. That’s DEFINITELY NOT been the case. They still look forward to receiving their cold hard cash and counting it to make sure I’m not short-changing them (which I try frequently – and am not ashamed to admit it).
One of the best things to see has been Leia’s generosity. Her school has a weekly bake sale to raise funds for charity. The baked goods cost €0.50 each. Leia takes her wallet and often gives a friend some money if they have forgotten theirs.
“Giving frees us from the familiar territory of our own needs by opening our mind to the unexplained worlds occupied by the needs of others.”Barbara Bush
Leia and Yoda have also been responsible for buying birthday presents for siblings / friends – and they seem to make more thoughtful choices when they also consider price. Or at least Leia does. Yoda still bases his presents on what he would like.
“No Yoda, Granny Chaos does not want Ninjago for Christmas.”
There are alternatives to money
Leia has also started to appreciate that the value of gift is not based on cost. For the last 2 birthday parties she has attended, she has made earrings for her friends instead of buying a present. And her friends loved them. She’s realizing that by thinking outside the box, she can save money and give a more meaningful present.
Reducing our expenses
Although allowances have cost us €200 over the last 6 months, we have made some savings. That includes not having to spend money on the weekly school bake, presents for friends / siblings, or drinks when we go out to eat. We “buy” water as the default drink when we eat out, and they can use their own money if they want something else. Though not Jack Daniels. For obvious reasons.
There are also the intangible savings. When our kids ask for something at a store, we tell them to use their own money. And the asking stops and there is no whining. Not really a saving – but I would pay cold hard cash for this outcome.
Then there are savings on the difference between what we think our kids need and what they want. I recently bought slippers for our kids. I found pairs that were the right size and would keep their feet warm. Leia wanted a slightly different pair – that happened to be more expensive. So she used her money to pay the difference. We paid for what she needed, she paid for what she wanted. Everyone was happy.
Interest and compounding
Leia is now more excited about getting her interest at the end of the month than she is about her weekly pocket money. She can’t believe that her interest (€3 for March) is now almost as much as her weekly pocket money.
The 5% interest per month we are paying has really started to add up. This is the miracle of compounding interest. Which is incredibly powerful to harness when working in our favor, or difficult to master when working against us – like with credit card interest, or even a pandemic.
New containers for pocket money
We ran into two issues with our Lego allowance boxes. Firstly, they used up valuable building blocks. Secondly, they were full and we had no more space for their allowance. This, in part, led to some weeks when we deferred the allowance – see the Ugly below.
So Mrs C, Leia and Yoda used some icing sugar containers to make new allowance boxes. These were cheaper than the Amazon alternatives, gave the kids an afternoon of creative fun, and freed up Lego pieces to fight over during playtime instead!
And for anyone jumping to the conclusion that we use way too much icing sugar, I’d point out that we have three birthdays in our home in February and Mrs C’s love language is making cakes.
Cause and effect
One of our principles is that allowances cannot be withheld as a punishment or for failure to complete chores. But, if our kids destroy / damage something that we have to pay to replace, then we will consider making them contribute a nominal amount towards the replacement. This is in more extreme cases where there was intent to damage and where they had previously been warned.
Leia, Han and Chewy have all had to make contributions. Han Solo’s offence was not the time he tore up a whole roll of toilet paper and flushed it down the toilet during a nationwide TP shortage. It was the next day when he decided to try the same trick again having been warned that there would be severe repercussions. Fortunately, we caught him before too much of our (weirdly) precious commodity had been flushed…
A failed wallet solution
We realized at the 2-month mark that we often had to ‘loan’ our kids money when at a store as they didn’t have their money with them. And they were less restrained with borrowed money rather than their own. Perhaps there’s a lesson here on credit cards. So we resolved to buy them wallets. Santa dutifully obliged, though in his old age (Mrs C blames me even though Santa was clearly the culprit), he bought our four year old twins full size wallets. Which are WAY too big for them.
Not tracking spending
I want our kids to get into the habit of tracking their spending. It’s such a powerful process (see HERE). Our eldest should be able to do this. She already loves playing with spreadsheets which
makes her my favorite means we can double up on her learning. But it will take some dedicated time. If only we had more time at home together to work on projects like this…
Payday stopped being a habit
We went through an 8-week period where we didn’t pay an allowance. That wasn’t because we didn’t want to. Rather, a number of circumstances created some extra friction and our habit stopped being a habit.
The friction came in several forms including starting to eat breakfast in the kitchen instead of the dining room where the allowance jars were kept – and losing the visual reminder they provided. The Lego jars were full as noted above and we needed another solution, and there were a couple of weeks when I did not have the correct change. And once you’ve missed a couple of weeks, it is easy to put it off as you need to calculate back pay as well.
Both Mrs C and I would point out that our biggest frustration with our families’ allowance systems when we were growing up was a lack of consistency. And here we were doing the same thing.
Anyway, we are now caught up and back in our regular routine. The Lego jars have been jettisoned, my daughter now has enough savings that I can swap bills for her change, and we have cleared a space in the kitchen for the allowance jars.
What’s your process?
I’d love to learn more about how others run their allowance systems. Please let me know what works for you and what doesn’t!
Really enjoyed reading your latest blog Keep up the good work So encouraging to see how General Leia and Yoda are saving a good percentage of their pocket money
Leia and Yoda are doing a great job of saving!
Damn Santa! That guy’s always making mistakes, but he’s a trier though!
Exactly Kieran! You wouldnt believe the number of mistakes he makes with my wife’s presents.
Hi, new subscriber here 🙂 just found your blog, I love the nicknames you’ve given your family.
It’s so important for kids to start to figure out money. I started getting pocket money at 7 – it was 1 Swiss Franc (less than £1). I would always go to the corner shop, buy one or two 10 cent candies for me, one for my mum, then put the rest in my piggy bank.
Giving interest to kids is a great idea though, I wish my parents had thought of that.
Hi Kathrin – thank you so much for subscribing! Saving is so important – particularly when times are tough and we need some extra resources to fall back on. That’s what we’re trying to instill in our kids – and the interest definitely helps. Though I suspect that at least one of twins will end up being a big spender!
We’ve tried several allowance schemes: (1) daily sum tied to doing chores (ultimately perceived by Thing One (The Elder) as punitive, and jettisoned after some tears were shed (hers, not mine)); (2) an all or nothing proposition of a weekly sum dependent upon most chores being done (ultimately ditched because Thing One and Thing Two (The Younger) stopped doing chores); and (3) other schemes, the details of which I cannot recall, but were dependent upon the kids reminding us to pay up on a certain day (ultimately abandoned because the kids started forgetting to remind us). The biggest failing was probably mine and The Missus’, as we were lax about chore enforcement and even worse about remembering to regularly pay allowance. Thing One has since started earning good money by babysitting and has displayed a quite admirable spending/saving/donating approach. And Thing Two also isn’t ever-anxious to be liberated from his money. So maybe we did something right along the way, even if it wasn’t our ham-fisted approaches to allowance.
I love the fact that you kept trying new approaches – and as you say – you clearly did something right!
I copied your example, thank you very much for idea. We have glass jars. They were getting full of coins so I have written down how much in each. Every thing has gone into L bank account. Giving away was suppose to happen at Easter, I wanted go to the charity with L and handover the donation so that might see the affect, it has one them. L is saving for a barbie Caravan, which isn’t cheap but I have to say she getting there. I am glad of the idea because I was rubbish with saving, praise God got there now.
Really cash has stopped for now because I don’t have any but I continue to pay money into bank account until the virus, I hope passes by.
Hey Alex – transitioning to a bank at some stage is also part of the learning curve. The sooner our kids are comfortable working with bank accounts the better! I love the idea of taking L to give their donation directly to the charity – very powerful for kids to meet the people and see the impact their donation is having! Keep up the great work.
Do you have an example of your spreadsheet that you can share? I am trying to figure out an educational allowance plan for a 7-year-old only child who, quite typically, doesn’t have a clue about money and saving. I love your plan, but I’d like to have a “hypothetical child” who saves everything to compare to since there aren’t any siblings to provoke a little rivalry for savings (and interest earnings). A good spreadsheet seems like a way to show his results compared to the “super-saver”.
Another question occurs to me. Do you have any limits on the saving allowed? I can envision a really motivated child saving aggressively and getting into the thousands of dollars. I guess that would be 1-unlikely, and 2-a good problem to have.
Thanks to you and Ms. Chaos for the great blog.
Hi Jon – thanks so much for reading. The hypothetical child is a really interesting concept – I hadnt considered before. My initial thought is that kids are smart and will figure out that this imaginary friend is not real, and perhaps not attach the level of competitiveness to them that you’d like. A couple of suggestions for positive rivalry would be 1) against themselves (you saved $15 last month, lets see if you can beat it this month), or 2) against a friend where you can persuade their parents to implement a similar approach (though this may not be an apples to apples comparison, as even if the rules are the same, their application may vary).
In terms of spreadsheets, one of my daughter’s projects for the summer will be building this with me. And I’ll share once available. For a seven year old, I’d put a chart on the fridge that is very visible and very visual. I know that would have a much bigger impact on our 6 year old (and would have with our current 8 year old when she was a little younger).
We dont have limits on saving, but the thought did enter my head as our eldest closed in on €100 of savings. All of our kids spent some of their savings during our lock down on buying some new toys. I’ll write about it more fully in the next update, but that reduced all of their savings a little. Also agree that this would be a great problem to have. Ultimately if their savings get so high that I cant ‘afford’ the interest, I’ll use that transition to teach them about stock market investing and help them move these savings into the stock market.
Thanks again for the compliments, and even more, for continuing to read. Makes the writing worthwhile!
A quick update and one more question.
Update: I cajoled my 13-year-old into participating with the 7-year-old (with the exact same allowance), so he’ll have a visible and real comparison to illustrate the value of saving (she has already learned this rather well, I think/hope).
Question: When do you pay the interest? Does it happen on the last day of the month, separate from “allowance day”? I was toying with calculating weekly interest and paying it with the allowance, but that seems a bit cumbersome. I might consider to changing to 1% weekly, but then the numbers aren’t going to look as compelling when the interest is paid. Giving up some of the immediacy by just paying monthly might make the impact greater due to the larger interest payments. Hmmm, new though, maybe pay interest on the first of the month and call it “extra allowance day”?
Thanks for the update Jon!
I pay the interest monthly on the first saturday of a new month – along with their allowance for that week. There are a couple of reasons for that – 1) I want our older kids to calculate the interest which takes some time – and I dont think they’d have the patience to do that weekly, 2) from a selfish perspective, I want the allowance process to be as simple as possible for me so that we don’t drop the habit – and monthly during the normal allowance is simplest for me.
There has been an added benefit in paying the interest monthly. In the last 2 months, our eldest’s interest has been higher than her weekly allowance for that week (which would not be the case if paid weekly). The light bulb in her head about the power of saving is starting to flash.
Hiya, really enjoyed your posts about your allowance scheme and I am absolutely stealing it so thank you very much! I just had one query though – with the saving pot, how does this work in terms of what they do with that and when? I mean, does it start off with them having a toy or something in mind that they are wanting to save for and they just keep going until they reach that and they then get to buy it, and then it starts again from £0 or do they have to have saved for a certain amount of time and then they get to choose what to do with that or does this go in to their savings account?
Hope that all makes sense!
Thank you so much again, great blog ☺️
Hey Kate, thanks so much for reading! How we deal with the savings pot is still a work in progress. Our current process is that the kids have a savings picture with up to 3 things they’re saving for. Sometimes they cut these from magazines, other times they draw what they are saving for. Every couple of months we’ll check in with them to see if 1) they want to change any of their pictures, or 2) whether they want to go ahead and buy something they’ve been saving for. We’ll then help them get it through amazon and we’ll talk through whether the price is a reasonable price or whether it may come down in price (the camel camel camel tool is great for this). This process means they are intentional about what they are saving for (and the anticipation adds to their excitement), they have time to change their minds (happens often!), they learn about shopping around for a good price, but they also know that ultimately they will be able to get something they’ve picked if they save enough.