When creating your allowance system, consider how it translates to life after age 18. Think of ways to make the your kids allowances relate in some way to what happens in adulthood.
Pay kids allowances regularly without fail
Treat allowances as a base income that is never withheld as a punishment. As adults, most employees receive regular paychecks, usually through online deposits to their accounts. Employers don’t withhold pay at whim.
Use a written account that kids can see their allowance as a number on pay day. By direct-depositing allowances parents need not have cash and kids can record their own income regularly.
Give kids complete control
Allow kids to control how their money is spent. Just as no one tells an adult how to spend every penny, kids will learn from their experience making their own decisions. Any mistakes will be educational and can’t hurt them financially.
In effect, you are giving your kids control over part of the family budget, similar to a business providing funds to department heads. In your family each child runs a department with specific needs and interests.
Use fines and fees
Adults experience financial consequences for the actions, good and bad. Use your kids allowance system to install a fine and fee process to control behavior. Kids will learn there are financial consequences of actions, e.g. late fees and fines.
In our home I created Helping Hands, a posted list of services I would do for the child and then charge them a small fee subtracted from their account. For example, if they did not hang up their jackets or pick up their toys, I would charge them a fee instead of nagging. Helping Hands is explained in my book and was very effective and short-lived because my kids didn’t like seeing their balance get smaller.
Provide incentives and bonuses
We offered special work opportunities when one of the kids wanted to earn extra money. They regularly got bonuses for good grades. Sometimes there were individual incentives to break a bad habit or improve behavior. These were all in addition to their regular weekly guaranteed allowance.
Transition to reality
A system like The No-Cash Allowance gives your child real control of real money, including cashless spending. Your child tracks and controls the money in an account in your home–similar to a checking account. It is possible that much of the money may never exist in the form of cash. The child receives larger amounts of money and more spending responsibilities over the years.
Parents are the best teachers to help prepare their kids to manage their money as adult by doing the following:
- Provide money
- Provide opportunity for practice and repetition
- Encourage and praise
- Commiserate over mistakes
- Trust their kids to make good decisions
- Provide years of practice before adulthood
- Start the conversation money
As a parent you use money you would spend on your kids anyway to provide a financial education in your home to give them real control of real money now. No allowance apps required.
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Lynne Finch helps parents teach their kids about money from their first allowance to online banking. “It’s time to teach the kids how to manage money they can’t see or touch,” says the author of The No-Cash Allowance. Follow Lynne’s common sense approach for teaching children that money is a number with kids as young as pre-school and continuing through high school.