My 4-year-old son recently received his first present of cash in the mail.
“Look, it got a money in it!” he exclaimed, as a $20 bill drifted out of Grandma’s Thomas the Tank Engine birthday card.
This raised a question that I’d never considered before: how do we teach Ben what $20 really represents? Should we encourage him to save it? Splurge on a toy? And in the longer run, when will he be ready for an allowance, and how much should it be?
A quick trawl of the Internet and friends revealed a wide range of opinions about children and allowances. Some parents start as early as 2 or 3 years, some much later. Some tie the money to domestic chores, some do not. Some make their children save or donate part of their allowance, and others leave them free to spend it on candy or Transformers or whatever takes their fancy.
Greg Jones, father to a 7-year-old girl, strongly disagrees with allowances altogether. “Kids should do what they’re expected to do and be allowed privileges like TV and games when they behave correctly.”
An Expert’s Advice
After absorbing an array of conflicting but equally valid-sounding approaches, I felt dizzy and realized if I were going to make any sense of this issue, I needed the help of an expert.
Enter Neale S. Godfrey, author of the bestselling Money Doesn’t Grow on Trees: A Parent’s Guide to Raising Financially Responsible Children. Godfrey has worked out a formula for allowances that seems to me to cleverly span the concerns of all sides of the issue. I asked her at what age children should start to receive an allowance.
“Start when the child says ‘I want, I want,’” she advises, “and when they discover that you use money at a store. This could be as early as 2, though I’d defer until 3.”
Godfrey believes that the concept of money as a medium of exchange is an amazingly sophisticated one, but that very young children can understand it.
“It’s important to teach the natural consequences of money; that the way to get it is to earn it,” she says.
In Godfrey’s plan, children receive a dollar a week for each year of age up to 16 (though from ages 12-16 they are “weaned” from allowance and expected to earn more outside the home). Allowance money is tied to domestic chores, but these fall into two categories: work-to-pay chores and citizen-of-the-household chores.
Citizen-of-the-household chores are the ones kids do for free; they teach them about pitching in and being part of a team.
According to Godfrey, “Things like brushing teeth, going to bed on time, helping with groceries, and recycling — those are about teaching kids to be good members of the community.”
Work-for-pay chores, on the other hand, are about teaching the life skills that are required to run a household.
“For little teeny ones, that could include dusting, setting out napkins on the table, or even setting the table,” says Godfrey. Older children could help vacuum, do laundry or perhaps help a parent file paperwork. The goal, overall, is to teach children budgeting skills and empowerment through earning.
The Four Jars
She believes the visual aspect is important and suggests you label four clear plastic jars or pouches as follows:
1) Donations. Children put 10 percent of their total allowance in this jar and give it to a favorite cause.
The rest of the allowance is divided into three equal parts that go into the three remaining jars:
2) Quick Cash. Your kids are free to spend this on whatever they like (though you can set parameters, such as no toy guns). You have to grit your teeth and keep quiet if you see them blowing this money on candy or cheap toys; they will learn from their mistake when the toy breaks after a week.
3) Medium-Term Savings. This is the jar that teaches kids how to defer instant gratification. They use it to save for something specific. For a 4-year-old, this might only be for a week or two; for older kids, it could mean saving for a bigger item, like a bike. Consider offering a matching plan.
4) Long-Term Savings. Open up a bank account with your child and visit once a month to deposit this share. This money is for truly long-term goals — college expenses, for instance, or a Eurail pass.
The Nag Factor
What can parents do when their children moan that their friends get more allowance, or that they don’t have to do any chores? “It’s the Nag Factor,” says Godfrey firmly. “Tell your children, I’m sorry, but these are the house rules. Nip ‘It’s not fair’ in the bud.”
Impressed as I was, I also noticed an instinctive resistance in me — perhaps to the extreme structure of Godfrey’s plan, or the commodification of our family’s domestic relationship? On the other hand, my own financial education was shaky at best, and I do want to teach Ben good habits. So I think we’ll try it out.
Meanwhile, Ben and his father took the $20 on a shopping trip — and came home with Gordon’s two express coaches, for which Daddy had to dip into his wallet for an extra dollar. I guess the financial lesson will have to start next week.
KIRSTEN DENKER is a freelance writer living Brooklyn with her husband and two children, Benjamin and Caroline.