Raising Financially Responsible Kids
Admission No. 1: A couple of years ago, I chose not to give my kids allowance. My philosophy was simple. I didn't want them to obsess about money. If they needed something, my thinking went, their father and I would get it for them.
Clothes, shoes, supplies, fees, a little pocket cash, whatever they needed, we'd provide – within reason, of course. The choice not to give an allowance was directed at preserving childhood, at keeping the dark specter of materialism at bay, for as long as possible.
Admission No. 2: I was so wrong. In my philosophizing about providing for all their needs, I failed to account for their endless list of wants – a list that expanded at warp speed when the first kid hit double digits:
"Mom, I want to color my hair purple."
"I want an iPod!"
"Will you get me ..."
"Can I have ..."
"All my friends have one!"
Looking back, I recall that moment, ten years ago, when my then-3-year-old daughter had a nuclear meltdown in the back seat just as we passed our local shopping complex. I should have known then. My husband and I were perplexed at her desperate, screaming demand to "go in that store, NOW!" We eyeballed each other – what could she possibly want at 9:30 p.m.? So we asked her. In a wail that only a hysterical preschooler can muster, our sweet doe-eyed girl gave us a view into the future:
So here we are, in the face of a serious recession, trying to figure out allowances and kick-start a financial education for our 15- and 12 year-olds, all the while mourning the fact that idealism, in this case, was a poor sister to reality.
We don't have a full-fledged plan hammered out. But in conferring with other parents and a handful of financial whizzes, we are starting to see a clearer path to a fair and successful allowance program.
Surprisingly, none of the parents I interviewed are changing their approach to allowance as a result of the national focus on overspending and financial bailouts, and they are not giving the issue much attention. I think they may be missing the boat here. Still, what I did learn is that there are as many ways of thinking about allowances as people to think them. And no better time to do it.
Getting It All Down in Writing
For Seattleites Pam Baldwin, Don Lee and their daughters Christa, 22 and Jenna, 19, allowance was always serious business.
So serious, in fact, that each girl was required to sign an official contract to seal her monthly allowance deal. The so-called "capitation" contract outlines exactly how much allowance is paid biweekly, what the kids will pay for, how much they must save (and what happens if they don't), the fee assessed against the parents for a late allowance deposit to the bank and strict rules around ATM cards:
• "Child shall not divulge her PIN number to ANYONE under any circumstances. Should this occur, Child will forfeit access to her funds and shall relinquish her ATM card for a period of three months.
• "Should the ATM card become lost or stolen, Parents will be notified immediately so that card shall be cancelled and another issued. Child agrees to pay for replacement card."
Baldwin, an emergency room nurse, and Lee, an artist, created their contract after reading the book Capitate Your Kids by John Whitcomb. Their no-nonsense approach has helped their daughters understand the way money flows in the real world, with all the benefits of good money management along with the consequences of poor management.
"There are not a lot of power struggles around money because the answer is always yes, just figure out a way to do it," says Baldwin. "Hey, if you really have to have that designer whatever ... okay ... you just have to pay for it, and also that expensive shampoo, I won't pay for."
They started giving their daughters allowance when each girl reached age 10.
"We started with the idea that they could budget immediately. It's hard to budget $2 or $3, so we started with $10," says Baldwin. "Now I give them $100 every two weeks. With that, they are expected to pay for all of their fun, clothes and school supplies and Christmas. Also, they have to put 25 percent into savings, which they are not allowed to touch without parental permission."
Both girls were set up with a bank account with an ATM card when they began receiving their allowance. Their cards were cash-only until age 16. At that point, they became credit cards, which Baldwin set up without overdraft protection so the girls could not go too deeply in debt. The girls are cautioned to be very careful with their cards and to balance their accounts frequently.
"They have overdrawn it and have had to pay the extra fees," Baldwin said. "I don't bail them out on it, but don't berate them either." Case in point: the time one daughter overdrafted a couple times, each by only $5 – a frustrating fraction of the steep fees the bank charged her.
"The sad thing in that particular lesson was that she over drafted for a total amount of less than $10, but was charged $175," says Baldwin. "The point of all the allowance business is this: In life, unless you are among the very wealthy, either you control your money, or your money controls you. Lesson learned."
The girls didn't get an allowance during the summer, when both were expected to work. As for tying chores to their allowances, Baldwin and Lee prefered to make these two responsibilities separate but equal lessons, especially when the kids were young.
"In our house, if the chores weren't done, money wasn't taken away – there were just other consequences," Baldwin says, noting that they tried to keep the consequences as natural as possible.
Learning to Earn
Sindea Horste and Geoff Upton-Rowley have tried many allowance techniques over the years, all with the aim of motivating their kids – Raiden and Summer, both 14, Teegan, 10, and Dawn, 9 – to help around the house and to learn about financial choices and responsibility. Horste and Upton-Rowley started giving an allowance when their sons, Raiden and Teegan, were pre-schoolers.
"When we first started, it was a weekly allowance of about $2, and as they got older it was about $5 a week," says Horste, a professional photographer and doula. "However, we were not having the best luck with them always helping with their own chores."
About two years ago, they came up with a plan that has served their goals well – and it's now working for their two biological sons and two adoptive daughters.
"They each have their own chores, in addition to keeping their rooms tidy and putting away their own laundry," Horste explains. "They choose those chores, such as emptying the dishwasher, setting the table, cleaning bathrooms, vacuuming."
Chores that are quick and easy earn a child one point. Chores that take more effort and time earn them more points. When Raiden mows the lawn, for example, he gets 10 points per yard (front, back or both). Weeding earns another 10 points per yard and is often Summer's choice. Each point is worth 50 cents. The kids keep a tally sheet of points, and are paid twice a month.
"If they do their chores they can earn a pretty decent allowance," Horste says. While the parents purchase all of the basic necessities, the kids are expected to pay for extras. Unless a birthday or holiday is nigh, the kids pay for nonessential toys, CDs and games.
"We know that some people do not believe in associating allowances and chores together. But that doesn't make sense to us," Horste says. "By earning their allowance, they learn the value of jobs and hard work, they learn the value of money, and they learn that they will not be just handed money for being part of a family. The children like this system as well."
Horste and Upton-Rowley, a registered nurse, are not changing their approach to allowances in the face of the country's difficult financial climate, "but we are encouraging them to be more careful in what they are saving up for," Horste says.
The kids, she says, all have bank accounts and are encouraged to save 10 percent of their earnings. Older kids pay a tithe to the family's church out of their allowance.
"Officially tithing begins at age 8, but the younger children often like to join in as well," Horste says. "Beyond that, we encourage our children to use their time to help out the community."
The Annual Budget – A Lesson in Self-Reliance and Stewardship
In Eric Scott and Peggy Williams Scott's household, kids have learned to plan ahead – way ahead.
Every August, the Shoreline couple sit down with their daughter Caitlyn, 15, and work out a budget for the year – just as they did with their older daughters, Nicole, now 25, and Amy, 23. They come to this annual meeting prepared to do business – and focused on giving Caitlyn the financial planning wings she needs to fly from the family nest.
"Eric and I started by showing the older two girls the larger family budget. We broke expenses by individual person in a few categories, just to give them some perspective of their personal expenses as part of a large financial picture," says Williams Scott, a community educator for the City of Shoreline. "Then we created a budget for them with line items that (were) their responsibility. We worked with the girls each August to adjust the allowance amount and also to clarify individual responsibilities relative to the new school year and the advance in age and stage."
Adds Williams Scott: "I think giving children an allowance at a very young age is an important part of parenting. Our relationship with money starts very early. Our success in managing ourselves, including money, will depend on the parenting we do or don't receive."
During the annual process, Caitlyn needs to consider and budget for the cost of her clothes, shoes, jewelry, personal care items, books not required for school, music, room decorations, hobbies, gifts for friends and family, special events, and other major purchases for the year ahead. School supplies are a parental expense. However, any discretionary school expenses are Caitlyn's responsibility.
While the country's financial crisis does not impact the expectation that Caitlyn, like her sisters, stick within her budget for the year, Scott admits his daughter "has been stepping up the requests and the discussion about increasing the budgeted amount each month."
Like a business owner might consider a pay increase for an employee in need, "We have been asking her to update her budget as a first step in considering a ‘raise,'" he says.
Williams Scott and Scott are willing to discuss a budget adjustment, but they are quick to remind Caitlyn of the principles of budgeting and money management and that a national recession is one of the "unknowns" that all responsible adults must face. Tough times, they have to remind her frequently, mean reducing costs or getting creative.
As part of being a fiscally responsible adult, Williams Scott and Scott helped each girl start a combined checking and savings account, with a Visa debit card. The older girls started accounts around ninth grade, while Caitlyn began a savings account in fifth grade. She, too, will get a bank account, checking and debit card in the ninth grade. If history is a prediction, Caitlyn will make some mistakes, just as her sisters did.
"They each wrote a few bad checks along the way," Scott says. "But, they learned to keep track of balances and be responsible for buying decisions."
"I think it is better to let the kids make mistakes with money while they are young, and with only a small amount to lose," Williams Scott says. "They are less likely to make the same mistakes later in life, when the stakes are much higher and there is much more to lose."
There are other critical lessons these parents hope their kids will learn from their allowance experience.
"When Caitlyn was really young, I started with a simple concept: stewardship. It's an old-fashioned word, not often heard outside the walls of a Christian church. It is a value, a concept, I think worth passing along," says Williams Scott. "The idea is simply to take good care of anything entrusted to you. I started by having her put her hand down on a piece of paper and drawing around it like we do for a Thanksgiving turkey drawing in preschool. I call this the ‘Five Fingers of Stewardship.'
"We labeled each finger together: Self, Relationships, Things, Money, Time. And in the center of the hand is you," Williams Scott explains. "It may be years before the concept of stewardship has any meaning to her; but at least it will not be a completely foreign concept when she finds herself in the process of establishing her own values."
First Respect, then Good Choices
Jay and Mary Beth Arnold of Kirkland say they plan to hold out on giving an allowance until their three young daughters demonstrate what they consider an important prerequisite for financial independence: respect for money. Right now, the girls consider money "a commodity with value," but genuine respect for the mighty greenback is lacking.
"Plus, our daughters aren't currently consumers and we would like to prevent or delay exposure to the consumer culture," Jay says.
Arnold says he and his wife have three goals for their kids when they start allowance: to get them familiar with how money works, to give them experience at making choices and to instill the values of delayed gratification, setting goals, and responsibility.
"Hopefully, by having our daughters make choices and set goals they learn the right lessons," says Arnold, technology director for a nonprofit advocacy group.
Initially, Audrey, 6, and her sisters Carmen, 5, and Scarlett, 3, will be asked to use their allowance money for toys or music or other items their parents "aren't interested" in giving them as gifts.
At first, Arnold says he would not expect the girls to focus on long-term "but instead toward a goal – even if that goal is saving toward a toy or electronic purchase.
"Our daughters each have different temperaments, and results of each will provide interesting examples for one another. For one daughter, saving will not be a problem – and she would soon show the results," Arnold says. For another daughter, saving will likely be harder.
Over time the couple expects their children to make more worthwhile, more significant, or longer-term savings goals, including saving for college.
The Arnolds plan to give a small allowance weekly, $1-$2, based on building a track record for reasonable, achievable rewards if their daughters makes good choices.
"Our biggest goal is teaching them about making choices – immediate purchases versus saving, spending money on experiences versus things, and gift giving."
Cheryl Murfin is a Seattle-area freelance writer who's trying to figure out how to manage allowances for Maddy, 15, Aidan,12.