We need to teach our children about money and how it works, partly to curb their short term demands on us, but mainly for their own long term benefit. When I was growing up, the usual parental tactic was to periodically rant about how they weren’t ‘made of money’ and how it didn’t ‘grow on trees’, but there’s nothing in these revelations to discourage a child from adopting an unhealthy disregard or regard for the coin, and going on to develop irrationally spendthrift or miserly tendencies.
A few months ago, while searching for a more sophisticated approach, I was won over by this article that advocates paying an allowance divided unequally into four pots: spending money, short term savings, long term savings and charity. I even found piggy banks that are specifically designed for it, so it must be a sound strategy, right?
My first piece of advice for anyone trying this is not to buy these piggy banks. They are insanely frustrating to extract money from, often resulting in torn banknotes. Given the change required to distribute funds in the correct proportions every week, this is a major flaw, so I resort to labelled jam jars after only a couple of weeks.
The other lesson that I learn very quickly is that for this to have any impact at all, you have to stop buying things for your children. Obvious, I know, but it’s a harder habit to break than I think it’s going to be.
Once I get into my stride with the new regime, however, it doesn’t take the kids very long to grasp the fundamentals that everything costs, money is finite and choices have to be made. In theory ‘spend’ money is for treats and low value ephemera while ‘save’ money is for something special that will take time to accumulate. In practice the distinction is harder to maintain because Stanley will conservatively transfer all his spend money into his save pot, whereas Carla declares any desirable item caught in her field of vision to be ‘something special’. When warned that a coveted headband will cost about 6 weeks of her spend and save money combined, Carla’s eyes ignite and the headband promptly goes from a ‘want’ to a ‘must have’.
Still, providing certain pitfalls can be avoided, I see the value of short term spend and save budgets, which is more than I can say for the allocation of ‘longer term savings’. These are supposedly for college or a car, but the recommended one or two dollars put aside per week is by any realistic projection unlikely to amount to a hill of beans compared to the many thousands of dollars (or bitcoins?) that will no doubt be required to pay for such things circa 2025 – and what conclusion would a young adult draw from that?
Then there is charitable giving. It’s more common in America than in the UK for people to give a percentage of their income to charity and encourage their children to do the same. To what extent this is down to differences in religious faith, taxes, welfare policies or other factors is a subject for another post (on another blog), but under this system 10% of the weekly allowance goes into the charity jar. This can be for sponsorship, raffle tickets, or maybe those charity collection funnels that make coins spiral interminably down a vortex of infantile fascination before rattling into an anticlimactic void. It’s a laudable principle, but does nothing in itself to help educate kids about – or engender empathy for – those less fortunate than themselves. To them it’s just money that can only be spent in a certain way.
Now that I’ve tried it, the overall concern I have about this system is that it promotes a sense of entitlement by guaranteeing an income while encouraging the notion that there are different ‘kinds’ of money, which is a disastrous combination. It’s one thing to earmark funds to ensure progress towards a goal, but the most profligate people I’ve met are those who consider their weekend ‘spend’ budget sacrosanct or who would never consider paying off nasty, boring debt with something as fun and exciting as birthday money, a bonus or that ultimate manna from heaven: the tax rebate (woohoo!). Affordable spending decisions come from a solid understanding that the numbers on pay checks, credit card statements, bar tabs, price tags, rental leases, grocery receipts etc all refer to the same stuff. Allocating income according to a set of rules, on the other hand, is a remedial measure more appropriate for helping people who (quite possibly through no fault of their own) have accumulated debt and need to start paying it off.
Having demonstrated to myself that the Four Pots Allowance isn’t going to achieve what I want for my kids, then, the question of what I am going to do instead remains. I’m currently looking at how other parents link allowances to chores or grades, and checking out online services that can facilitate more complex systems. I’m also giving due consideration to a contrary view that you shouldn’t give kids an allowance at all. I’ll post my conclusions here when I reach them, but in the meantime I’d be grateful for any opinions or experiences anyone would like to share on the subject.