Allowance Lessons: “If you save more and save longer, you can get cooler stuff. “

Do you want to know what allowance lessons a kindergarten kid is capable of learning?

Jon and I were working on our list of 100 ways to save money article, and I asked our almost 6 year old if she had any tips for saving money.

“Nope….well, just one:”

“If you save more and save longer, you can get cooler stuff.

Wow. Little Bit just blew me away with her savvy self. If you can remember what it is you really want before you spend money, then you’re more likely to have money for travel, a house, concerts, retirement, or anything else your heart desires. 

If she can remember this lesson and act on it, she’ll be ready to manage her money when the stakes are a lot higher than which Monster High doll she’s going to buy. Allowance lessons are paying off faster than I ever dreamed possible.

How We do Allowance

When Little Bit was 4, I got tired of hearing her ask for things every time we went to the store, so I set up an allowance system. Once a week, she could buy one thing of her choosing worth no more than $5. If she didn’t spend anything, she could spend up to $10 the next week.

It worked a little. She got the idea that an allowance was a limit she had to stay within, and it got some of the “I wants” out of her system. It was also really easy to administer.

This basic allowance didn’t teach her to manage money, though, because she never actually had any. She didn’t get to count up her savings, and she really didn’t have much idea of the value of money. She could either afford something or not, but didn’t understand why.

So last fall, we switched up her allowance to its current set up, and allowance lessons are much easier to teach.

Little Bit gets a weekly allowance of $6 a week. Fifty cents has to go into her savings account (and we tell her she’s saving for college, although we don’t expect her to fully fund her education for $26 a year.) Fifty cents has to go to her Giveaway Jar. Five dollars is for spending.

Why $5? Because it’s roughly the equivalent in spending power of the $1 a week my mom gave me in the mid 1970s, when candy bars or sodas were a quarter and most fun toys cost at least $2 or $3. To get the toys she wants, my daughter usually has to save her allowance for at least 3 weeks.  That’s hard for a 5 year old, but she can do it with encouragement. She even managed to save enough for a $40 Cleverkeet that she really really wanted.

When my daughter doesn’t spend her money, she finds her spending power increases more rapidly, thanks to interest paid by The Bank of Mom. If my daughter doesn’t spend any money for an entire week, she can get 25 cents for each additional non-allowance day that she spends nothing. So, if on week one she gets $5 of spending money, in week 2 she’ll have $11.50 instead of $10, in week 3 she’ll have $18 instead of $15, etc. This gives her an incentive to save her money for bigger things instead of blowing small amounts on fleeting pleasures like dollar store treats.

Little Bit’s spending money goes into her “money box,” an old peppermint bark tin that she keeps in her room. She can get her money out and look at it or count it any time, and does a pretty good idea of keeping up with how much money is in her account.. She leaves her money at home when we go out and if she buys something, she pays me back when we get home. She is responsible for the full amount of any purchase she makes, including any sales tax.

We used to let Little Bit buy pretty much whatever she wanted with her allowance, but we slowly began applying a veto towards in app purchases when we realized that was taking all of her money. We’ve vetoed a couple of other things that we thought were bad values, but for the most part our daughter gets to spend her spending money as she wishes.

Allowance Lessons

Allowance Lessons

So what allowance lessons has my daughter learned in the last 8 months? A lot.

  • Things cost money, and there is not an unlimited supply of it. Better things cost more money, and you have to save longer to get them. It’s up to you to decide whether something is a good value, but for the most part the things she can buy with one allowance don’t provide as much value as the things she has to save for.
  • She can save up for the things she wants. She’s gaining confidence in her ability to save, and her ambitions for her money are more expensive.
  • She has a pretty good idea of “how many allowances” things cost. We even talk about how much things she’s not responsible for buying cost, like our monthly electrical bill, Netflix subscription and groceries.
  • She learned the hard way to check online reviews before you buy things. Not all products are good buys, and it’s better to know if an item has potential problems so that you can avoid wasting money.
  • She’s learned that she can help people with her money. Last December her $10 of Giveaway money went to her school’s Backpack Buddies program, which helps feed hungry kids when they don’t have access to school meals. This Christmas she’ll have over $25 to give to the charity of her choice.
  • She’s learning that at least some money has towards her future. College for Little Bit is as far away as retirement is for us (even further as a percentage of total life experience), and she knows that some of her money goes for college. Hopefully this sort of long term thinking will carry over when it’s time for her to start socking away funds for her own retirement.

Little Bit hasn’t become a financial superstar yet. She still wants to spend money, and sometimes she spends frivolously instead of saving for the bigger items she says she wants. Since the things she currently has on her “I want” list are over $100 and would take almost a year of saving, that’s not surprising. I hope she finds a $40 or $50 goal that would be more realistic for her.

Lately, she has tried to make “bargains” with us to get extra money or new stuff, like grabbing the remote and telling me I could be the one to decide what to watch on TV if I would just buy her a $100 toy. I turned off the TV and opened a book, much to her disappointment. There are things she could offer to do that would inspire me to give her some extra money, but she hasn’t found them yet.

Finally, she’s still not as careful with her things (and ours) as we would like, despite being told that replacements are her financial responsibility. One of these days, she will indeed have to use her spending money to buy new blinds or something else she’s broken. So far she’s been lucky. The only things that have fallen victim to her mistreatment are her own toys, and usually after a few tears she goes right back to playing with them.

Heading into the Future

Little Bit turns 6 next month. Aside from making me feel old, it’s also making me think about future allowance lessons.

Some parents add to allowance each year, but I don’t think we’ll be those parents. Little Bit’s allowance is already pretty generous for her age.

As she gets her financial feet under her, though, I’d like to add to the allowance and the responsibility she has to take on with more money. Right now, Mom and Dad pick up the tab for clothes and activities. As Little Bit gets older, she’ll take more control over these things, clothes in particular.

My child is already a clothes horse. She pays attention to brands, even though any light-up Skechers and Justice clothes in her closet were not picked up new. So I anticipate letting her manage her tween and teen clothing budget will be interesting as she learns what she can and can’t afford. I’m hoping it teaches her to look for value, seek out deals, and manage money. If not, I guess it will have to teach her how to earn more or do without.

We’re also managing trips to the movies or other activities as family trips. We all go, or we don’t go. I know eventually she’ll want to go with her friends, and that she’ll need some more spending power as she gets older for various other things I’m not anticipating.

Jon’s already talking to her about investing, too. I anticipate she’ll be running some mock portfolios as she gets older.

All of these allowance lessons are aimed at helping her go into college and young adulthood with a good sense of money. By the time she has to make financial decisions without a net and with a credit card, I want her to know to stay off the high wire. It’s much better to build more solid footing and we’re giving her the tools to do it.

What allowance lessons did you learn as a kid? What was the hardest lesson to learn as an adult?

*Part of Financially Savvy Saturdays on brokeGIRLrich, Disease Called Debt and Frame to Freedom*

21 thoughts on “Allowance Lessons: “If you save more and save longer, you can get cooler stuff. “

  1. Sounds like Little bit is building a great financial foundation and learning quickly. 🙂 I never received an allowance as a kid. As the youngest of five siblings it just wasn’t what we did. We were expected to pitch in around the house and if we need money for going out, parties etc it was provided by the bank of mom and dad.
    Brian @ debt discipline recently posted…Financial AidMy Profile

    • I can see with more kids allowance might get complicated, especially for kids of different ages. Yesterday Little Bit started comparing her allowance to that of a movie character, and we had to point out that the kid on the movie was older. It also allowed us to say “When you get more money, it will be because you’ll be responsible for paying for more things like movie tickets.” She found that a little intimidating, but we assured her that was a long way off.

  2. “If you save more and save longer, you can get cooler stuff. ” Ain’t that the truth! What great insight for a 5 year old!

    I never received an allowance as a kid, but as I got to my teen years, my parents would give me a little gas money and an allowance for clothing. I worked to have spending money. Which brings me to my kids – we still don’t do an allowance at the ages of 13 and 15. The reason for this – their grandparents give them a lot (too much) money on holidays and birthdays (like close to $700/year), of which we make them put some toward their 529 plan and they have to budget the rest to last until the next handout. I don’t know the right thing to do, as I’m not a big fan of the way things are with this situation. My fear is the amount will go up and, if it does, we’re going to have to either stop it or come up with another plan.
    Amanda @ centsiblyrich recently posted…The right time to start working on your finances will never come (so start today)My Profile

    • Yikes. $700 is a lot of money for just having. What all are they responsible for paying for though? Again, I can see my kid having that much as a teen, but it would have to pay for whatever cell phone plan she had (which even our inexpensive plans at Cricket run over $400 for the year) and movies and other activities. You can also increase the amount going into their 529s or into a savings account for their incidentals in college. you might even be able to set them up with a custodial account and get them started on investing.

      • Always love feedback on this – thanks! Wish I could blog about it, but…you know. They are responsible for just about everything except for basic clothing and food, so they do have to budget or go without. I have been slowly increasing the amount going into 529s so I’m not met with a ton of resistance. They do have a savings account and a custodial account would be a good option. I like the idea of starting IRAs for them and plan to do so when they start working at 16.
        Amanda @ centsiblyrich recently posted…The right time to start working on your finances will never come (so start today)My Profile

  3. Wow, you guys are doing a great job! We have an allowance, but I can’t say that my 6-year-old is as advanced in her knowledge as your cutie pie! I’m going to take a few pointers from you so I can be a tad bit more interactive with my daughter as she spends her money. Fortunately, she has had a single focus and that’s to get her iPad, so that could have a lot to do with how little guidance we’ve been able to provide regarding her spending decisions.
    Latoya @ Life and a Budget recently posted…How to Create a Budget That Won’t FailMy Profile

    • I’m still amazed that your daughter has zeroed in on the iPad and is making such good progress toward a long term goal. Mine gets distracted by other things to buy, and doesn’t always show the grit to get the things she really wants.

  4. We just started giving Kenny $.10 for every job he “completes” He tells us he wants a toy called Blaze. He is starting to develop an interest in money but until he can count *accurately we will just stick with the lesson that jobs=money= toys

    • That’s a pretty good equation considering Kenny’s age. I am trying to put a few more jobs on Little Bit’s plate, (she sets the table, helps bring in groceries and is “light monitor” to make sure things get turned off when not in use around the house) but we don’t tie them to the allowance. I like teaching work leads to money, and more work leads to more money, but I also want to teach “You’re part of the family and expected to contribute with what you can do to help and you won’t get a direct reward for everything you are expected to do.” I feel like those are both important lessons to learn, and I guess we’re using chores for the latter.

  5. Thanks for sharing how you do allowance and what your daughter is learning. We are trying to figure this out with our four-year-old and recently wrote about it, too. We started paying for certain chores in coins so it would be more concrete and easier to understand. We also have a “give” ziplock bag in his bank so he can donate something to charity.

    • I really like the Give bag/jar/account. It’s a great lesson to teach kids that they can and should help others. As a kid I was expected to tithe, but I like that we’ve opened up our daughter’s giving options to other ways of helping her community. (Church is an option, but so is the food bank, animal shelter, etc. Last year she chose to give her cash to the project that feeds food-insecure kids at her school on weekends and breaks.)

  6. Oh man, I used to beg my parents for an allowance when I was a kid (or better yet, a chore system where I could earn more money by doing more chores), but they weren’t really into it. I think it’s awesome that your daughter gets to start learning financial lessons about saving money at such an early age!
    Sarah Noelle @ The Yachtless recently posted…Notes from the BusMy Profile

    • There are other ways to teach, though. We’ve been playing Monopoly, and it’s hilarious. She is both blocking other monopolies and setting up in the hotel business.

  7. I didn’t actually have an allowance as a kid, but I think if I ever had one, I’d do the allowance thing. I really didn’t know a lot about money for a long time, it’s just worked out well that I get anxious without a solid financial safety net, so I’ve built one. It could’ve just as easily gone the other way.
    Mel @ brokeGIRLrich recently posted…The Personal Balance SheetMy Profile

    • I really like it because I don’t have to tell her “No” as often when she wants stuff. I just tell her she’ll have to save for it IF she really wants it. And that will be true when she’s a grown up and on her own too, so she might as well learn to make choices now.

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