How to effectively use allowance to teach your kids

Do you give your kids allowance? Or have you tried it before and just felt like it wasn't working? I don't think you're alone.

What do I know about allowance? Absolutely nothing. Little Man isn't even two yet so we are still working on not dumping out the entire bottle of bubbles all over himself and not spitting milk into the plants (nice right?). You've been there, I'm sure.

I was recently chatting with a dear friend who has three amazing teenage boys. She is the kind of person that makes you wonder, "Are you for real?" and then after getting to know her you realize she is. Somehow we got onto the topic of allowance and we started talking about what she and her husband did with her boys. I was taking major mental notes in my head. (I turn into a little sponge whenever she opens her mouth).

So, instead of using allowance as an incentive or reward for actions, she uses it to teach her children about money.

She teaches them about taxes, spending, saving, donating...all from the ripe old age of five. Genius! Teach your five year old about taxes. Crazy? Not really.

Her idea is that children should understand the way the real world works from the beginning. That way when they are out on their own, they already understand that they aren't actually going to see all of the $10/hour they are making.

So how does she do it?

She decided to give each of her boys $1/week for each year old they were. (So her 5 year old got $5/week).

So if you have a 5, 7, and 9 year old, that would be $21 a week which is $7665/year out of your pocket. BUT...here's the catch. Her kids didn't see all of that money.

Here's where it went:

The 50% savings turned into about $5,000 by the time her kids were ready for college. (They are actually going to use it to help their boys serve a mission for The Church of Jesus Christ of Latter-day Saints). How is that for a little help with college expenses? Having 50% go to savings really just allowed her and her husband to save for their education starting when their kids were young.

The 30% family tax goes to family vacations, expenses, and fun. This teaches the kids that even if they don't like it, they don't get to keep all of their money. Meeting Uncle Sam for the first time might feel a little familiar.

The 10% to charity teaches the kids to always reach out to others and give.

And the 10% spending eliminated the "I hate you mom" screaming episodes at the grocery store. If my friend was ever in the checkout line and one of them couldn't live without a candy bar, she pulled out her record of their spending money and let them decide whether or not the candy bar was really worth spending their own money on.

BUT...she didn't end there. Once her boys were old enough to understand a bit more about budgeting she let them at it. (Want to know more about budgeting? Check out my budgeting series here.)  She figured out how much each of her boys would get in spending money total for the year (based upon their age) and she gave it to them in cash at the beginning of the year. That way, they had to figure out what they would use each month so they wouldn't run out before the year was up. And since they were still under her roof, there were plenty of discussions (and a little lending here and there) to help them understand the concept.

How about that? Teach your kid about taxes, saving, spending, donating, AND budgeting with a little allowance. Stop using allowance as an incentive or reward and start using it to teach your child about money.

How about that? Does anyone have any other allowance ideas that have worked consistently? I am all ears and a little sponge ;)

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