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Raising a financially intelligent child: focus on allowances

The authors of The Financially Intelligent Parent recommend giving your child an allowance - but don't tie it to chores.

By Marian Wilde , GreatSchools Staff

Jon and Eileen Gallo, authors of The Financially Intelligent Parent: 8 Steps to Raising Successful, Generous, Responsible Children advocate allowances as a tool to teach financial literacy to children. Furthermore, they believe allowances should not be tied to doing chores, reasoning that children need to learn to contribute to the household and to develop a work ethic independent of material rewards.

GreatSchools.org Staff Writer Marian Wilde asked the Gallos for guidance on some of the thornier aspects of allowances.

Marian: I give my kids allowances. My 9-year-old gets $5 a week and my 14-year-old gets $10 a week. (And I'm finding that this might be too little.) My 9-year-old wants to know why he isn't getting the same as his older sister. Do you have advice for parents on this issue of parity between siblings?

Eileen: I would just say that he's the younger. That's the reality, that he's younger so he gets less money.

Jon: May I respectfully disagree?

Eileen: You may certainly disagree.

Marian: Now, this is getting interesting.

Jon: I think of an allowance, and I think Eileen does too, in terms of a tool that's designed to teach a kid to think reflectively. If you go to our Web site, you can download what we call our allowance tracker. It's a spreadsheet that allows you to keep track of what you're spending on your kids for about two weeks. You keep track of your spending for two weeks and then you decide which of those items you'd like the child to become responsible for. So for the 14-year-old, if you're spending $10 a week on video games, and this is just hypothetical, you might decide that video games are something that you're no longer willing to pay for. Instead you're going to give your child an allowance of $10 a week.

You sit them down and say, "I've been spending $10 a week on video games for you. I'm not going to buy them for you anymore. Instead I'm going to give you $10 a week. You can use the $10 to buy video games or you can use it to go to the movies or you can use it to buy books or you can use it for any other purpose you want to, but I'm not going to buy video games for you anymore. You're now responsible for them."

Eileen: But we do also encourage saving and putting some aside for charity.

Jon: So you'd give them $12. You'd say, "I want you to put $1 away for savings and $1 for charity. And now you've got 10 bucks which is what we were spending for you on video games and now you've got the choice of how you want to spend it." Now she's got to make a choice and to think in terms of alternatives and consequences, and she also understands what the allowance is for. So if you did the same thing for your 9-year-old, you'd say, "I'm spending $7 a week on you." You give him the $7 and he says, "Why am I not getting $10?" Then you can say: "I'm spending a different amount on each of you for different things and you are responsible for your baseball cards, or whatever it is, and your sister is responsible for the video games." It'll make both kids understand why their allowances might be different.

Marian: I also told them that they had to buy birthday presents for family members and friends with the allowance.

Eileen: It's up to the parent to figure out what they want covered. Keep in the back of your mind that an allowance is really a tool for them to make choices, to feel what it's like to use money, to feel what it's like to make mistakes.

Marian: How do you feel about deducting money from a child's allowance as a punishment?

Eileen: Then the child can come away having a negative experience about money.

Jon: Don't tie the allowance to not doing chores. If they don't do their chores, there have to be consequences, but don't make the consequences the allowance. Make the consequences tied logically to what they failed to do. If they didn't pick up their toys and they were supposed to, maybe you need to put the toys away for a week.


Comments from GreatSchools.org readers

11/28/2011:
"I'm not so sure that taking money away for a disciplinary correction method is such a bad idea... if we as adults make mistakes, many times it results in a dent in our wallets, ie: speeding tickets, etc. just as long it is appropriate in relation to the misbehavior. In my opinion, it increases consequential financial awareness. I also believe constant change in the value of money and whirlwinds of item pricing; are topics that can be addressed by explaining the fundamentals of giving vs. taking and saving vs. spending. They can learn to assign value to things they desire, which in turn will teach them to invest in the item's worth. My son is 3yr and he thinks the world is financially replaceable, but at that age they dont understand value quite yet... he is learning that if something breaks we cant always replace it. I have to remind him constantly but it helps that he is learning his numbers. Right now the concept is being introduced, but when a little older I think he will! grasp the idea quite well. "
07/30/2009:
"Great article! I went over this plan with my son over dinner at the Cheesecake Factory tonight. Sounds like a plan! I really like the idea of NOT tying it to chores, but keeping the focus on responsibility and making choices about money. FINALLY an approach that is what is it is and not cloaked in some other agenda that uses money as a carrot. Thanks to the authors and keep up the good work."
10/9/2008:
"I give my 9yrs old $10 weekly but he has to put 30% of that into his savings. He does not spend it all the time. Last week he surprise me because said he wanted to get a Visa gift card for the amount of cash he had. He said is more convenient than having cash at the store."
10/9/2008:
"We do this with our kids, they are 16 and 11 years old. They get allowance for being 'part of the family', just as chores are from being 'part of the family'. The have to divide the amount they get each week by 4, 1 part goes to charity, 1 part to gift giving, 1 part to savings and 1 part is 'free spendable'. It's amazing how much they have learned about what it takes to manage money (keeping track of payday, calculating, and balancing) and comprehend how much time it can take to save up enough to get something they really want. They ask us for alot less and they are more willing to pay for half of something that they want and we want them to have. "
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