Managing an allowance doesn’t have to be a lot of work. Neither does keeping track of how well your kids are doing in managing their spending to their budget. In fact, it’s possible to make and allowance almost completely automatic. Here’s how:
- Get your child a pre-paid visa card linked to your bank account. We have used the USBank VisaBuxx card for years, and found it works well. It’s important that the pre-paid visa is linked to your bank, because this eliminates all fees when transfering funds into their prepaid card.
- Have the kids do a monthly reconciliation of their spending, by budget category. This is really, really easy – because they have a record of all of their spending in their prepaid visa statement. This reconciliation can be done on paper, in a ledger; in a spreadsheet, like Google Docs or Excel; or using an easy and free online budgeting tool like Goodbudget. Our family are rabid fans of Goodbudget.
- Set up an automatic transfer from your bank account to the kids’ prepaid visa cards on the date(s) of your choosing. This can be monthly, or weekly, in whatever amount works for you.
Most adults use direct deposit to have their paycheck automatically show up in their accounts on payday. By using the Automatic Allowance, you’re giving your kids experience and practice in direct deposit at an early age, while at the same time making allowance day painless for you.
We’ve been using this system for nearly a year now, and it has DRAMATICALLY simplified the whole budgeting and allowance process. Along the way, we’ve had some hiccups, though. Here are some Q&A to help you learn from our mistakes:
What about cash?
I also recommend paying a small amount of a monthly allowance in cash – small bills, like ones and fives. We pay $10 each month to our kids in cash, the rest onto their cards. If they need more cash, we have a number of no transaction fee ATMs in the neighborhood that they can use. As an added bonus, they’re learning how to use the ATM!
What about savings?
We talk with our kids every few months about their savings plan. Each of them puts at least 10% of their allowance into savings, but our daughter saves about 20%. This amount is directly deposited to her savings account on the first of each month, using the “recurring transfers” feature in our online banking.
What about charity?
We encourage our kids to find a way to make giving to charity automatic. Each year, they find a charity they want to contribute to, and then each month, 10% of their allowance is automatically donated to that charity. This has been a very positive experience, because the kids have learned how large that charitable contribution is, and what an impact that is, over the course of a full year. It’s also a great habit to get into, seeing that it’s easy to be generous in charitable giving if the giving happens first, not after all the spending is done.
What if the kids are really messing up, and blowing their budget, or spending money on questionable things?
With the prepaid visa cards, you the parent have complete control over the card. You can see the transactions, you can disable the card at any moment, and you can set daily spending limits. Even if you’re not checking on the kids, you should be looking at their month-end reconciliation, and talking to them about their budget. “Are you getting enough allowance? Are you looking short in any categories? Are you going to have enough saved up to pay for that activity in a few months?” These conversations help your kids understand that you’re on their side, trying to make their budget work, not an evil ogre forcing a budget upon them. It helps you to gauge how well they’re managing money, and where they might need some more practice or assistance.
We’d love to hear from you — What tools do you use to keep the pain our of allowance day? What problems have you encountered?