One of these days, if they haven’t already, your kid is going to come home with more money than she left with. Congratulations, there’s another income in the family! This is great news, and is the start of a whole new financial education for both of you.
There are a couple of key things to consider:
- What should kids do with their income?
- What new opportunities and obligations come with income?
- How does this impact the allowance?
As parents, it’s our job to provide for our kids, but we’re also to look forward to the day that we can cut the cord and see them move out on their own. While they may start out with an odd job for a neighbor, or a night of babysitting, they will soon move on to a summer job or a part-time job after school, and eventually to their first full-time job. The point is, how you help them to manage their first income will set the stage for development for years to come.
But really, there’s no pressure. 🙂
So, back to the considerations from above: What should kids do with their income? When we started our kids out on an allowance, we had them devoting 10% to savings, and 10% to charity before allocating the rest of the allowance to other categories. We use the same approach with the money they earn, as well. As tweens, any money they earn from odd jobs or babysitting is divided as follows: the first $10 goes into your wallet, to spend as you wish. The remainder in excess of $10 goes into your savings account. To be honest, at this age they don’t need any extra income, because we’re giving them enough to buy what they need. But it’s great to see them wanting to earn their own money, and if we made them put it all into savings, a lot of the incentive would be lost.
As they get older, and their income starts increasing, we’ll transition them more into the 10/10/80 plan. For right now, with $20 here and there coming in, this plan is working really well for us.
What new new opportunities and obligations come with income? There are a lot of things that kids want – and a lot of things that I don’t want to spend my money on. Cell phones, gaming consoles, another pair of designer jeans… you get the picture. When kids start earning their own money, it’s a great way to start reinforcing that hard work can lead to rewards – being able to buy the things you’ve always wanted. They won’t have enough income to go totally crazy, but enough to see the benefits. As they start to earn more money, you should consider moving some of their allowance items over to their responsibility. Our kids now get $10 per month for “food” – they use this to buy an occasional school lunch, snacks at the mall, or some candy at the grocery store. Once they start having a regular flow of income from babysitting or odd jobs, I plan to eliminate this $10 from their allowance – it will be the first decrease in their allowance, as I aim them toward financial independence when they move out of the house. With a summer job or a part-time job in high school, they’ll be able to take more responsibility for their activities and clothing budgets. You get the picture.
One practical example: our daughter, at 13, desperately wanted a cell phone. I wasn’t willing to pay for one – so I told her that she could have a cell phone if she could pay for it herself. She found a prepaid plan that gave her unlimited minutes for $30 per month, or limited talk and text for $20 per month. This translated into just two or three babysitting jobs each month, which she was easily doing anyway. Now, she has an incentive to babysit, and she’ll also call up the neighbors at the end of the month to see if they’d like to go out on Saturday night! So I guess the fringe benefit is that she’s learning about marketing.
How does this impact the allowance? As I mentioned above, it’s my goal to have the kids off an allowance someday. I know that they’re going to get more expensive between now and then – cars, gas, more expensive activities… I don’t expect them to be able to fund all of this, but I’d like them to feel that they take pride in earning a decent share of it, and I know that if they do, they’ll be a lot more mindful in how they spend that money.
When kids start earning an income, it’s a good thing – they’ve taken the first step on what is hopefully a life-long activity. How they learn to view that income, and manage that income, is key. To make the most impact, start as early as possible, and use their income as a tool to build in them more financial independence.