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 paid off faster than I ever dreamed possible.
How We Do Allowance: The First System
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. She 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. That switch meant allowance lessons became much easier to teach.
How We Do Allowance: The Current System
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 of the 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 anytime. She keeps a fair idea of how much money is in her account. When 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.
So what allowance lessons have 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. 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.
Where We Still Need Work
Little Bit hasn’t become a financial superstar yet. 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 cost 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. For instance, she grabbed the remote and told 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.She could offer to do other things 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. 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 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. Someday, she’ll want to go with her friends. She’ll need some more spending power as she gets older for various other things I’m not even 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 aim 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?