Our Allowance System

Written by dad - 11 Comments

I’ve written about this elsewhere, but I thought it would be worth pulling together my thoughts here… Awhile back we decided that the time was right to institute an allowance system at our house. After thinking it over, we decided that we’d provide the boys with $0.50 per week per year of age, which means that our four year old gets $2/week, our five year old gets $2.50/week, and our eight year old gets $4/week.

In order to teach the kids about the value of money, as well as to instill in them a sense of civic responsibility, we divide their take into spending money (60%), long term savings (30%), and charity (10%). They have free reign over the spending portion — they can blow it as they get it, or they can save up for something a bit bigger. Their long term savings (destined for college, or something equally worthy) goes into a high yield online savings account at ING Direct ($25 account opening bonus), and we let the charity contributions accrue for awhile before letting the kids each pick a charity for their donations. As far as responsibilities go, they’re expected to pitch in and help out around the house (in proportion to their ages/abilities), but they don’t have a specific set of chores that they have to complete in return for their allowance.

All in all this system has worked out really well for us. The boys have stopped asking/begging for things in stores because they know that it’s up to them to save up for something if they want it. And they’re astonishingly good at it! Our eight year old has already saved up for some pretty big ticket items, including a portable CD player and a Nintendo DS — that one took months of no spending, saving birthday money, etc. — and our five year old has saved up for some GameBoy games. They also LOVE to log in to their bank account and check out how much interest they’ve earned, and they have a great time picking out their own charities (with some help from mom and dad, of course).

More info on our family’s allowance system:
Kids and Money: Setting an Allowance
Kids and Money: Long Term Savings
Kids and Money: Tweaking our Allowance System

Published on February 17th, 2006 - 11 Comments
Filed under: Money
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Comments (scroll down to add your own):

  1. I like that system, and when I have kids I think that I might implement something similar.

    Comment by Blaine Moore — Feb 17th 2006 @ 9:44 am
  2. Sounds like a good system. Earlier this week when I was in a Rite Aid with my 2 year old and he was in raptures over some toy firetrucks, I was wishing I could just let him spend his own money to get the darn toy.

    What age do you think it’s possible for kids to understand this? My son knows what money is, likes to hold it if he can get his hands on some, and can count surprisingly high, but I don’t think he’s up for the math involved in calculating how much stuff costs.


    Comment by claire — Feb 17th 2006 @ 12:03 pm
  3. We started it when our two oldest were five and seven. Shortly thereafter, we realized that our three year old (now four) was chomping at the bit to join in. He’s actually handled it pretty well, although it took him a little while to get used to the idea of having to save up before he had enough money for whatever it was that he was interested in. So… Three worked pretty well for us. It probably depends on the kid.

    Comment by dad — Feb 17th 2006 @ 1:18 pm
  4. Just getting kids to stop asking for stuff is already a win and you get to teach them good life skills at the same time.

    Comment by jim — Feb 19th 2006 @ 1:13 pm
  5. My wife and I are due with our first child this May 17th (1 day after my birthday). This is something that we will definitely do for our children. Great idea!

    Comment by Tom — Feb 22nd 2006 @ 8:50 pm
  6. That is a great plan. I have been thinking of setting up an ING account for my younger sister to try to teach her about savings at an early age.

    Comment by Jason — Jul 3rd 2006 @ 11:13 am
  7. I love how you integrated ING into the mix. Very creative!

    Here’s something for you to consider that is a further extension of what you’re doing. We’ve just moved to public beta a website that helps parents deal with this entire issue – and do it in a time-efficient way.

    – figuring out what the allowance should be (I also used to use 50ยข/yr of age but always felt that was too arbitrary and not connected to anything logical, especially as the kids got older)

    – creating a virtual family bank so you could easily create multiple accounts for each child. The kids have their own portal to see their accounts and print out a cheque and give it to you (you’re the banker) when they want to buy something.

    – there’s also a module to create Responsibility Checklists (chores) and optionally link them to their allowance, depending on how the kids fulfil their responsibilities. Allowances can be dialed up or down, depending on your child’s initiative.

    Drop on by and check it out – we’d love to hear your comments. We’re at http://www.activeallowance.com

    Comment by Harvey Beck — Jul 5th 2006 @ 11:29 pm
  8. Here’s what I did with my now 16 yr. old and it has been successful. We had an agreement re:percentages in long term, short term and charity. Starting @ 4, I gave her a weekly allowance, a couple dollars a week. This continued until age 9 when I switched her to a monthly allowance. At age 10, I cut her monthly in half but gave her a quarterly stipend. At 9, I was giving her $10 per week which was doled out at $40/month, then cut to $20/month at 10 but I have her $60 per quarter. I wanted her to continue saving regularly but also to comprehend impulse buying, budgeting, etc. At 11, I gave her no monthly and only a quarterly $200 and at age 13, she received $1000 annually. I made is very clear that she was welcome to earn more money but would not be “getting” any add’l funds. She is now 16, has been working since she was 14, has numerous CD’s laddered, has a Roth, is the absolute best about resale shops, yard sales, etc.,is responsible for her expenses and I haven’t heard the whining and begging for something in years! (YES, it’s true) Lessons along the way are numerous. I was very firm, to the point of being ridiculed by some friends, in teaching her to be responsible about money. When shopping, if she forgot her money and asked for a loan, I would charge her 20%. She saves receipts as she has learned that not everything is as cool as it looks on TV. She understands that sometimes paying a premium for the good quality classic item results in a long-term saving over the fad. She has purchased resale items, worn them gently and then resold them.

    One thing I did when she was probably 6-ish was to get a scrapbook and a bunch of magazines to cut photos from. We labeled part of the scrapbook “Long Term” and another “Short Term” and cut pix out for each category, discussing what each meant, what the items were, why she chose them, etc. I believe that activity really helped her grasp the basics of goal setting. On a related note, when she made deposits into her savings acct., I would ask the teller to give her the amount of interest earned and show her the actual money the bank paid her to save her money. Again, helped to understand the basics of interest.

    Comment by Debbie — Mar 26th 2007 @ 11:21 pm
  9. Nice system, Debbie!

    Comment by Blaine Moore — Mar 27th 2007 @ 11:49 am
  10. You have all made interesting comments on this subject – thanks! I had always struggle with the idea that kids should get a fixed amount based on their age and wanted to set up a system that would mirror later life. I worked on the principle of basic jobs versus extra jobs (to mirror overtime, working for a promotion etc) as this would give them the incentive to save extra when they need it. I also have a set amount (between 20c and $1) for each job. The chart is stuck on the refrigerator and they mark off their jobs when they do it (less nagging!) I have found that my youngest boy does his basic jobs, my middle daughter does the basic and some extra jobs and my oldest daughter is always looking at doing more jobs on the chart for extra money. Click on my name below for the link to a sample sheet (free of course!).

    Comment by Rich — Aug 5th 2008 @ 7:24 pm
  11. I pay my kids interest on their holdings. Five percent per month on whatever they have. Currently the two daughters — ages 13 and 15 — are both in the $400 range and are therefore getting about $20 per month. They generally do not spend all of it, so the allowance is increasing month-by-month. The older one was falling behind but had a short job this summer that yielded $150 so she got caught up to little sister.

    Comment by Zeke — Sep 5th 2008 @ 5:04 pm

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