Back in 2005 just when I was starting to blog, I never really knew what I was going to write about. So I wrote about the system I put in place to make sure that my kids got their allowances.
Real World Example: Kids Allowances
My wife and I wanted to get the kids on an allowance, so that they could learn about money. Inevitably, we’d forget to pay for a couple of weeks, try to catch up and eventually just gave up (much to the kids chagrin).
Interesting, we were trying to teach the kids responsibility and all it did was show how irresponsible their parents were (now THAT is ironic). It’s funny as a parent your kids end up teaching you as much as you think you are teaching them.
About 6 years ago I was in the TD on one of my yearly visits, getting my bank fees waived for a year, and get them to fix something they had screwed up (I think it was my mortgage that year). That is when I asked about kids’ bank accounts. My brother sends the girls money every year, and we had got to the point where we didn’t want to just buy them toys with it. The poor woman whose life I was ruining for the day, said the accounts could be opened then (since the kids had SIN numbers), and the accounts would show up “under” my account on my on-line banking.
At the time, that didn’t seem that important, but at the end of it, it really was the most useful part of the exercise, as I could then may transfers to the accounts for free, whereas now I would send it with a $1.50 service fee.
A day or two later, a light went on in my head. I called the bank on the phone woman (who I now call once a year, because I do most of my banking on-line, but couldn’t figure out how to do what I wanted). I asked her to set up weekly transfers from my account to my kids accounts, thus assuring that the money was paid every week (whether I remembered or not). It is amazing at how my thinking patterns work, I am not a Fast Thinker, but I do have good ideas, eventually.
Well, it has worked, the kids get their weekly allowances AND they actually do things like:
- Buy clothes that they really want
- Have somewhere to put their uncle’s money and can then buy what they want
- Buy presents for their friends birthdays (that one shocked me the first time it happened).
So it seems this experiment has worked, chalk one up for me.
In the end, it helped the girls understand money a bit more. We were not that heavy handed in terms of things they needed. We ended up paying for a large number of things, but we also didn’t make their allowances that big either, but I think the experiment worked out.
My kids are still very little to have their own accounts and budget their own allowance. But as early as now, I am already thinking of ways on how to approach them on responsible handling of money.
Okay, now I don’t feel so bad forgetting to put in the measly little sum my son gets as a monthly allowance! He does have a flyer route with direct deposit….currently also has a paper route to earn extra for an optional school trip to Europe.
I ended up opening up a joint account between he and I (I *think* he’s primary account holder, but not sure because he’s a minor), so I could transfer in his allowance, and transfer stuff out to us when we’re out shopping and he doesn’t have his debit card on him (or when we have to do an internet CC/paypal transaction). When he hits 18 I’ll remove myself from his account. Is that how it’s set up at your bank? Or something different?
Curious about something — what’s your views on kids having an authorized user credit card? Or the prepaid credit card?
I don’t have kids, and likely never will. Had I gotten married and had kids, I would likely be using the Dave Ramsey approach to them earning money. You want something, you need to earn it. We are ALL on commission. Try not showing up to work for a month or two and see if you get paid!
Same goes for the kids, they do the assigned tasks (taking out the trash, setting up the table for dinner and such…) and they get paid. Don’t do it, you don’t get paid. Certain task are community tasks and you do it because it needs to be done regardless of who it is that does it, and I am bigger than you are, so you do what I tell you to. That might not work for too long, as I AM kinda short, and wouldn’t take long for my kids to grow up past me! lol
The idea that kids earn allowance in exchange for work is the normal theory, but I’m not sure it is what happens in practice. Here, the kids get allowance and they have assigned chores, but the chores are really their responsibility as being part of the family – whether or not they get allowance. The association between work and allowance just isn’t there.
What I’ve found is that allowance didn’t really do anything other than give them some discretionary cash when they were younger. The real financial lessons came when they got summer/part time jobs and we showed them where to put the money (1/3 discretionary, 1/3 long term savings, 1/3 schooling & short term savings).
And hopefully showed them by example that they can set up an automatic savings program, even if it was with your money (but your money was kind of like their paycheque.)
I guess now it will be time to teach the eldest about TFSAs?