Over the last several months, I’ve been troubled over how exactly to handle an allowance (or lack thereof) with my son. I’ve read dozens of articles on the topic and looked at many allowance solutions, but nothing has come together as having the right balance of things I want to teach my son about money.
When do I get started? I plan on starting this allowance plan on my child’s fourth birthday, when he is old enough to at least comprehend that you have to spend money to get things, and that sometimes you don’t have enough money to get the things that you want. At seventeen months, my son comprehends that you go to the store where there are a lot of things, sometimes you want some of those things, and you put a few of these things in the cart and take them home with you, but that’s about as far as his economic understanding goes right now.
How much do I start with? My plan is to start with $5 a week at age 4. This will give him enough resources to buy some candy at the candy shop or similar things if he so chooses.
Saving versus spending Naturally, any child with an allowance is going to want to spend part of that money. So, right off the bat, there will be an arrangement in which he spends half of it and saves half of it.
On spending Half of the spending portion will go straight in his pocket (probably in the form of five quarters at first). The other half will go into an “emergency fund” of sorts, which is savings for special occasions, like a trip or an expensive toy that he’s had his sights on for a long time.
On saving The other half goes into a jar for saving. I plan on literally using quarters for this, so ten quarters will go into a savings jar each week. I will let him watch the jar slowly fill up, then transfer that jar to an even bigger jar. I want this to go on for a while so he can really see the money build up, and I’ll probably do it in this physical fashion for several years. It won’t earn returns, but it does create the idea in his head in a very visible, tangible fashion that saving money means that it builds up over time.
How is the allowance earned? Each week, we prepare a checklist of chores that need to be done: making the bed each day, cleaning up the toys in the evening, and so on. For the first year, these will be really simple and basic. This list will take the form of a checklist, and we’ll check off the things as he does them. For each unchecked thing, his allowance gets docked a certain amount (probably a quarter at first). This way, he learns that the allowance money is earned, not given.
How can this grow over time? Each year, he’ll get a raise in allowance on his birthday. This raise will coincide with more tasks on his list: emptying the dishwasher, mowing the lawn, vacuuming, and so on. The checklist stays in existence with penalties for each unchecked item.
What about grades? My philosophy is that when he first starts receiving report cards with clear grades (early elementary report cards often aren’t clear), then we set a threshold for him to reach, say, a 3.0 GPA for the quarter. If he reaches that, he gets a permanent raise, but the goal for the next quarter goes up to a 3.25. If he doesn’t meet the goal, then the goal for the following quarter stays the same (or perhaps lowers a bit if his academic progress shows that he’s not as strong a student as he used to be). If the goal is a 4.0 and he keeps nailing it, I don’t mind giving raises over and over again – a student that can earn a straight 4.0 all the way along is both very bright and a diligent worker.
This is my current plan for an allowance for my child. My wife and I are still debating the grade situation, as she thinks that a good report card should be rewarded with a special treat like eating out. I think that would be fine with one child, but if we have multiple children, what do we do if one does well and the other does not?