Allowances need to evolve because of the changes in our money practices

by | Homeschooling Financial Education, Kids Allowances, Kids, Money and Responsibility

allowances need to evolveAllowances need to evolve simply because money keeps changing. Money is no longer that physical pile of cash that was “here today and gone tomorrow.” Instead of reaching for cash to make a purchase or payment we’re just as likely to use credit or debit, smart phone, or computer.

Consider the following explanation of how money today from How Stuff Works.

Purchases can be made through a web site, with the funds drawn out of an internet bank account, where the money was originally deposited electronically. People are earning and spending money without ever touching it. In fact, economists estimate that only 8 percent of the world’s currency exists as physical cash. The rest exists only on a computer hard drive, and in electronic bank accounts around the world. 

We’ve gone from bartering when no one had money, to metal coins, paper currency, paper checks and now a plethora of cashless spending methods where cash is invisible. Today’s money exists as a number. 

W­e­ invented money and we use it, yet we cannot…understand its laws or control its actions. It has a life of its own. ~ Lionel Trilling, literary critic

Allowances need to evolve

Parenting experts recommended allowances for kids more than a century ago, while continuing the debate on how and why kids should have money. Some of the reason for allowances included: respect for money, benevolence, pay for chores, don’t pay for chores, responsibility for spending and mistakes, and learning to spend within adult-approved budget plans. 

In reading about the history of allowances, I found interesting consumer-focused ideas such as: saving to buy more expensive goods, consumer spending indicating a well-adjusted personality, but excessive thriftiness showing a lack of imagination.

In most recent history, rates for allowance started climbing in the 1960s reflecting a higher standard of living. Surveys show that the average weekly allowance is $30 week, with much of that spent primarily by teens, who are on the doorstep of becoming legal adults.

As the debate about how much and why to give kids money continues, we ignore the reality that every kid will be a legal adult sooner than we think.  

Can kids manage the cashless money of today?

Today’s children are growing up in an era where how we use money changes with the speed of technology. We add new ways to spend money without entirely replacing previous methods. This sets up a longer learning curve for our children because of the many forms of money that are available. 

The majority of parents agree that because of technology, kids today think of currency differently than they did growing up. T. Rowe Price Parents, Kids & Money Survey

In the years that my kids were growing up, money methods changes. We realized that allowances need to evolve as well. We learned new terminology and techniques together, adding to our topics for money conversations. Our oldest daughter taught me how to use an ATM when she went to college. 

People can now spend and receive money without ever looking at the bottom line that shows how much money is in their account at that moment. Unfortunately, this works well until the day of reckoning arrives with a late fee or penalty because someone wasn’t tracking the funds.

With our virtual money zipping around in cyberspace, we need to know when money is coming in and when it is going out. Tracking our cash flow shows us what our money is doing while we’re not looking. A system like the no-cash allowance provides a reliable, consistent process for kids to see cash flow in action. 

Parents can use allowances to prepare kids for adulthood

As a mom, I learned that when our kids tracked their money as a number they learned what many adults struggle with. My approach was to guide my “adults in training.” Spending mistakes are gentle lessons. Responsibility and control builds confidence. 

Money management is all about making decisions. When kids control their money, parents are facilitators. In our home, we repeated our mantra over and over. “It’s your money. You decide.”

Allowance anecdotes

Managing the piggy bank: My young grandson started getting his first allowance in coins to teach him about physical money. As he dropped them in his piggy bank, he also wrote the numbers in an account he created by himself. Maybe he wanted to be sure the piggy bank was doing its job.

Learning how money works: As the family banker, I was reviewing my daughters’ account logs and was surprised to see that they were transferring money between their accounts. “What are you doing?” I asked. They explained that they lent money to each other by adding and subtracting the numbers. They’d discovered non-electronic funds transfers and thought they were geniuses.

When your kids track all their money as a number, they become better money managers.

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Read more: How to confidently prepare the next generation in your family

Next week: Focusing on this truth about money will help your kids mange today’s cashless spending

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