Basic allowance rules for long-term success for your kids

by | Homeschooling Financial Education

basic allowance rulesMy allowance as a kid failed to prepare me for the adult world of money. When I became a mother I was not going to commit that mistake. Here are the basic allowance rules I learned for creating a successful experience for both parents and kids.

Back in the 1970s when my kids were young, children’s allowances were commonly considered an economic entitlement. However, one of my goals as a mother was to teach my kids that having money is not without obligations.

I know from experience that an adult is completely in control of and responsible for all financial decisions. My kids need to get a taste of what adults do with their money. Kids want to be like adults who:

  • Decide how to allocate funds
  • Make their own decisions
  • Accept results of bad decisions

Therefore, the transition from being a kid with money in hand to being a fiscally responsible adult is not an overnight leap. Therein was my challenge.

Transitioning to adulthood

From the start, I absolutely did not want the hassle of managing my kids money. To figure out how to avoid that situation I looked at how allowances generally work in most families. There were three areas to address.

The Money

Enter the eternal questions for parents. How much? When? What for? What if I don’t have the money? These storms were brewing on the horizon.

Consequently, I needed a workable, reasonable solution to these questions. I needed a system that was transparent. Above all I wanted to avoid family arguments about money.

The Control

Obviously, parents give money to their kids. But in giving kids money who decides how it is used? Traditionally parents retain considerable control of their kids money choices with good intentions.

Deep down, I wanted my kids to be independent. The very idea of telling them how to spend their money screamed “mom control.” What would they learn from that?

The Responsibility

Now here’s where I got really tangled up in my planning. If my kids had zero spending responsibility they would spend their money any way they want.  Spend. More spending. And more.

I needed a strategy to help them transition to the adult world of money. After all, who can’t spend money someone gives them? What was the difference between kid spending and adult spending?

It was right in front of me in that stack of bills. Expenses. My kids needed to manage their own kid-size expenses.

Now that I identified my three areas of focus I set some rules to guide our family through the allowance years. The entire strategy is explained in my book The No-Cash Allowance.

Basic allowance rules for kids

  1. Record all transactions as a number in written account initially kept in the home. This includes ncome from weekly allowance, work and incentives.
  2. Allocate funds for needs, wants, and obligations.
  3. Keep accurate records for review. No records. No money.
  4. Withdraw for expenditures with parents acting as facilitators.
  5. Complete obligations on time.
  6. Accept financial penalties for violations.

Basic allowance rules for parents

  1. Transfer (direct-deposit) all funds as a number to child’s account
  2. Facilitate withdrawal requests as cash or credit with parents
  3. Review account

Finally, when you look at these rules you can see that the responsibility, decision-making and management is shifted from parent to kid. My kids owned their money and everything that went with it. When I transferred control to my kids my role as facilitator and guide clearly defined our relationship.

As a result money became a neutral topic that we could easily talk about, a reality that continues today as they are adults with their own families.

In conclusion, helping our kids learn to manage money is a challenge. Over the years money changes in the way we spend and transfer it. In most money transactions today cash is invisible. Using a system that requires kids to track their money as a number and make decisions gives them a hands-on adult experience.

Does your allowance strategy follow these rules?

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