After a couple years of stability, we recently decided to tweak our allowance system (again).
For background, our original allowance system involved paying the kids $0.50/week for each year of age, broken down as follows:
30% spending money
30% short term savings (e.g., a video game, pricey toy, etc.)
30% long term savings (e.g., a car, college, retirement, or some such)
10% to the charity of their choice
So, for example, our ten year old would get $5/week with $1.50 into spending, $1.50 into short term savings, $1.50 into long term savings, and $0.50 to charity. After giving this system a bit of time to work, we decided to tweak our allowance system a bit to provide more flexibility (or more lessons about money management). Here’s what we did…
60% spending money
30% long term savings (e.g., a car, college, retirement, or some such)
10% to the charity of their choice
The reason for lumping short term savings in with spending money was to let the kids decide whether (and how much) to save for bigger ticket items, as opposed to frittering their money away on smaller, more immediate purchases. All in all, this has worked quite well.
Of course, we also give the kids an opportunity to ‘upgrade’ spending money to their savings. We call this our 401(kid) plan, and for every dollar they decide to move from spending to savings, we match it with a dollar of our own. Their savings accounts are held as joint accounts at ING Direct, such that we can access everything under a common login.
This system works quite well, with one exception… We’ve found that it’s often difficult to keep up with a weekly allowance payment, such that we wound up giving multiple weeks at a time less frequently. While the same amount of money was getting doled out, it was far less consistent than we had intended, and it often left the kids unsure of how much that had.
To rectify this problem, we’ve tweaked things a bit more. This time, we left the 60/30/10 distribution unchanged, but have opted to move to monthly payments. So now we sit down on the first weekend of every month and settle up. The biggest change here aside from the frequency is how we figure the amount.
Instead of paying $0.50/week per year of age, we now pay $3/month per year of age. This works out to a decent raise for the boys, though it’s still far from extravagant. And the decreased frequency of their allowance payments means that they have to budget a bit more to get through the month.
The other recent change is that our youngest is now three year olds, which is the age at which we start paying an allowance. For him, this means getting $9/month.
For more thoughts about kids and money, see these articles:
» Kids and Money: Long Term Savings
» Teaching Kids About Money
» Teaching a Six Year Old to Save
» Teaching Kids the Value of a Dollar
» Allowance Insights
» Teaching Kids About Money: Lead by Example
