Teaching Kids to Manage Income

 

TeachingKidsIncomeManagementWe have been working out the details of managing an allowance for our kids over the last six years, and have a few guiding principles that have helped us adapt when changes are necessary:

  • An allowance isn’t their money, it’s ours; we’re just giving them freedom in managing it
  • An allowance doesn’t cost us anything; it’s the same amount we would have spent on them anyway
  • An allowance isn’t tied to jobs or chores; however, if you’re not trustworthy in managing your chores, maybe you shouldn’t be trusted managing my money.

Those simple ideas have helped us keep making changes as they grow, and their wants and needs grow.

We’re facing a new challenge now: what happens when a kid starts earning his own income?  Our daughter is babysitting, and our son is doing yard work or other outside odd jobs for the neighbors.  The other son manages a flock of chickens and sells the eggs.  It’s not just these jobs, either – there are birthday and Christmas gifts, extra jobs around the house, and even proceeds from yard sales.  These add up $20 or $30 at a time into something significant.  This extra income also raises some new questions:

  • Should they be allowed to keep all of this earned money as discretionary income?
  • Should they be saving a some or all of this new income?
  • Should we reduce their allowance as their income rises?

We don’t have answers to all of these, but I can guide you through our thoughts so far.

They shouldn’t pocket all of this income as extra spending money.  The same rules (Share, Save, Spend) apply to this income as applies to their monthly allowance.  What we’ve settled on is the idea that, every time they earn some extra money, they put $10 of that in their pocket as fun money, and the rest goes into savings.  This really boosts their savings, and that extra $10 for every odd job is a great incentive as well.

It’s not a good idea to mandate that they save all of their earnings, because this reduces their incentive to find more work.  Similarly, I think that it would be a bad idea to let them keep all of their newfound cash for fun money, as it would be reinforcing a bad habit of spending every last dollar earned.  At their ages (12-14) the $10 rule is working well.

It was a joy to watch the kids in action this spring, before we took our six-week road trip through the American West.  We had told them about the trip six months prior, and were working with them to plan activities and adventures.  Each kid knew that they were going to have to think carefully about what they wanted to do, as they were going to be responsible for picking activities to fit their own budgets.  Any money they could earn and save would mean more activities, more T-shirts, and more candy on the road.  (Each kid is motivated by a different carrot.)

Our eldest vastly outworked and outsaved the others – and he was able to do a couple of additional activities as a result.  The amazing thing was, there were no hard feelings or cries of, “It’s not fair!” from the other two, because they remembered well how hard he worked all spring to earn that extra money.  But I digress…

There’s the final tricky issue we’re now dealing with:  what do we do with allowance as a kid’s income rises?  I think it makes sense to reduce their allowance as their income becomes more regular, for a couple of reasons:

  1. Their allowance is how I take care of their needs.  If they have income of their own, they need less from me.  If I had one child with far greater needs than another, I’m going to spend more money on the child with special needs – this is what a responsible parent does.  It’s not an issue of fairness, it’s making sure that the family is taking care of everyone’s basic needs, and that everyone is contributing whatever they can to make sure this happens.
  2. Someday, Junior is going to move out on his own – and this means there will be no more allowance.  If, starting at the early teen years, he can start earning his own income, I can gradually start weaning him off an allowance, and by the time he leaves home, he’ll be working and earning the lion’s share of what he needs to survive.  More importantly, he’ll already be proficient at managing that income, so that he’s not starting off life by relying on debt just to put food on the table or gas in the tank.

I love seeing my kids’ joy in working, earning their own money, and having complete freedom in how to spend it.  Our daughter just turned 14 this week, and has been dreaming of buying a smart phone for the last year.   We’ve talked quite a bit with her about it, and made it clear that it would be her purchase, and her responsibility.  We weren’t putting any money in her allowance for a luxury item, or to pay for a monthly smart phone plan.  The plans she was able to find for the phone she wanted started at $40 per month, with most being $50.  A two-year commitment was out of the question – we weren’t about to sign her up for that, so a no-contract monthly prepaid plan was her only option.

In the end, she settled for an “almost” smart phone, with a camera, a keyboard, and 1500/1500 talk/text each month.  The phone was just $29.99 (which she paid for with birthday money) and the monthly top-up will be $30.00 – which she will pay for out of her babysitting jobs.  The way she sees it, that’s just three babysitting jobs per month, and she will have enough to buy the next month’s top-up.  The way I see it, she now has motivation to go out and beat the bushes if the babysitting jobs aren’t popping up.

It warms my heart to see my kids find their own source of motivation.

 

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