27 September 2011

Real world math: put kids in charge of their money

Kiddy Bank logoSpending money! The perfect setup for real-world learning and natural consequences!

There are many methods for giving kids an allowance -- tied to chores, tied to age, bonuses-for-extra-work, etc. How (or if) one gives an allowance is rooted in one's family culture, and doesn't lend itself to pat directives. But, no matter how you decide to give your kids an allowance, I find the key to increasing its power as a teaching tool is to put your kids in charge of how they spend their money.

Putting buying decisions in my kids' hands has done wonders for their money savvy, consumer awareness, and math skills. Specifically:

  • Addition and subtraction ("How much to I still have to earn to buy x? How much will I have left if I buy y?")
  • Percentage ("Hey, Mom! Museum members get 10% off in the gift shop!")
  • Fractions ("Hey, Mom! X is on sale for half price!")
  • Decimals (dollars and cents)
  • Quality vs. value ("It's cheap, but it might break the second time I use it.")
  • Needs vs. wants...or wants vs. other wants ("I want that video game, but maybe I should save my money for an iPad 2.")
  • Long-term goals ("I want to buy a car when I get my license.")

A few key details make this strategy work:

Allowance must be big enough to be meaningful.

I got two bucks a week when I was a kid, but it was more of a token payment than anything else. We pay our kids an allowance equal to their age. Half goes to "spending money," and half goes to "long-term savings" which they get when they move out. They choose what to do with money they receive for jobs or gifts (spend it all or save part of it).

If they ask, I also "cash out" gift cards. That is, if they receive a store-specific gift card but would prefer the cash, I buy it from them, knowing it's a matter of time till I shop at that store myself.

We choose not to formally tie allowance to chores or work, except for specific jobs such as lawn mowing or washing the car. For us, changing the context from "family responsibility" to "cash for work" decreases teamwork and increases conflict and loophole-finding.

We no longer buy treats and trinkets.

This is essential. No more lollipops in the checkout line. No more cheap toys. The only way kids learn to assess value is to pay for impulse purchases themselves.

This also goes for "upgrades" to purchases we cover. For example, we have a certain budget for school clothing. If our kids want the too-expensive pair of shoes (or whatever), they kick in the extra.

We advise our kids on purchases if they ask, but we don't judge what they buy.

My kids decide what's valuable to them. Beyond the most basic guidelines (nothing unsafe or offensive), they can buy whatever they want with their own money. Sometimes they buy candy or crap toys, but rarely...they decided early on it's a waste of money.

We track allowance and spending electronically.

The roadblock we kept hitting was the actual handling of cash. We never had proper change when it was allowance time (or we'd forget to pay it). Someone would forget their wallet, or forget to put their money in the wallet, etc. We'd buy stuff for the kids, forget to get paid back...you get the picture.

An iPhone app solved the problem: Kiddy Bank. This simple app is little more than a smart ledger, automatically adding allowance each week, with the ability to debit for purchases and credit for earnings and gifts. We've created separate spendings- and savings "accounts" for each of the kids, as their allowances and savings rates are different. The app is not connected to an actual bank account, so no money actually moves around.

So there you have it...our allowance strategy. I'd love to hear what's working for you.

iPhone app giveaway: Kiddy Bank

The giveaway is now closed, and the winners have been notified. Thanks to all who participated. You're welcome to continue the conversation by leaving your comments!

Kiddy Bank costs 99 cents at the iTunes App Store, but I've got free download codes for four lucky Parenthackers! Just leave a comment on this post to enter. I'll randomly choose the winners this Friday, 9/30/11!

(A comment I'd love to see: your suggestions for Android apps or Web-based services that track allowance.)

Thank you, Pablo (Kiddy Bank developer), for passing along the download codes. I'm a huge fan of this app, and proposed this review and giveaway, and he was happy to oblige.

Related: More allowance hacks

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I'd love to know at what age should children start getting an allowance. My son just turned four. As of yet he does not get any sort of allowance but I think he's starting to get an idea of how money works. I took him to Target over the weekend to spend a gift card he received. We looked at different toys. I told him which ones were too expensive and he picked out one that he could pay for with the card. I was kind of impressed!

Ah! This is brilliant! My five-year-old gets an allowance but I am not great at remembering to give it to her and then she mostly just hordes her cash in her bedroom, and she love the iPod Touch so this would work perfectly.

We keep track of kids' money with a manual check register.

My husband and I keep talking about starting an allowance for our kids, but we generally get stopped by the logistics - I don't trust that I will remember it enough to be consistent. This sounds like a way to fix that and let the kids start to be responsible for their own money just a little bit. Thanks!

Our kids get an allowance just for being part of the family; they can earn more any time by doing certain paid jobs. They each store their loot in a Money Savvy Pig, http://www.msgen.com/assembled/money_savvy_pig.html. The four compartments work wonderfully for our 7- and 8-yr-old. (We currently "invest" the Invest funds in their saving accounts--we bring the kids to the bank and they fill out the slips.) We do not place restrictions on what they buy, except for safety reasons. Our big question: are we giving them enough? They get $1 each week, in quarters. We want them to have so little that they save up, but not so little that they never get to practice spending.

My son just turned 5 and we are starting to think about an allowance. This sounds like a good way to keep track.

We do something similar, but track our kids allowance on an excel spreadsheet. Each child has their own tab. It keeps a running total with columns for earned, spent, available spending money and savings and charity money. The Earnings calculate automatically each week.When they actually buy something, I deduct it. Has really simplified things for us

There is a free web-based service called Allowance Manager but an app is preferred since sometimes we don't have reception or are coming close to our allotted data usage. Kiddy Bank would be perfect for our family since our son is learning arithmetic and personal responsibility.

We have a 5 year old and have been giving him an allowance ($1 per week) for several months now (since about the time he turned 5). I think an app like this would work well for us, since we also forget to give it to him most of the time, and he also hoards it in his room. It is a slow process but I think it helps even young kids to get an idea of what money means and how much is reasonable for certain things - also the idea that once it's gone, it's gone. I also don't tie it to his household responsibilities - for us, the purpose of the allowance is to teach budgeting and money management, and he is required to clean up after himself and do certain (age appropriate) chores as a member of the family who lives in the house, just like the rest of us.

This is awesome advice. Especially the part about not judging what the kids buy with their own money and making sure the money is meaningful. You're also exactly right about not paying your child for chores (I wrote a post about why that is a bad idea called, paradoxically Don't Pay Your Child For Chores, (www.perfectingparenthood.com/content/dont-pay-your-child-chores). You have it right. I don't know how old your kids are, but we have 4 kids, the oldest being 7, so we don't have bank accounts or electronic tracking yet. They each have a little pouch. We also occasionally take out penalties from the children. For example, recently one of the children swindled the 2 year old out of some candy (said "Oh here, let me hold your candy for your" then a few minutes later somehow half of it vanished) and had to buy new candy from his own money to make it right. So many lessons are possible when the kids own something.

I find that at this age the kids still don't think too far ahead. They're not saving for college, but we go around to garage sales on Saturday sometimes where the kid's little amount of money can actually go a bit of a distance.

Don't worry about entering me for the download code, give it to someone else who would use it.

I'm totally with you - I started doing this with my 7-year-old last year, and it has been working brilliantly! The only (very small) difference is that we put 40% in the bank, and 10% is set aside to give to charity - usually he puts it in the offering plate at church, but I would be equally happy if he wanted to save it up and give it to a fundraiser at school, or any other charity.

I haven't bought an ice cream truck treat in well over 8 months! :)

I'm looking at Money Trail for Android, as I don't have an iPhone.

I love this post.

I have four kids, and we've just started allowances for the oldest two (10 and 7). They're tied to doing basic things they should be doing anyway, plus one daily and one weekly "chore" type activity. It's working OKAY, but I've gotten a lot better ideas from this post.

I've been tracking their savings (currently, they can choose to save or spend), along with our household budget, in Excel, but I'd love an app for this instead.

I am not completely convinced that I should be giving money to my children JUST for "being". I never got an allowance when I was a child, but I occasionally got money as gifts for birthdays/christmas/etc. This money I was allowed to buy whatever I wanted-still learning how money works and when it was gone, it was gone.
I also do not pay my children to help around the house since we ALL have to pitch in to keep up with 7 people in our household. However, while they are cleaning, if they find anything below a dollar, they are allowed to keep it. This gives a little incentive to clean around the living room and bedrooms.
Each of my children has their own savings account, but only the oldest (8yrs) really remembers that he has it with money in it. Whenever they want to spend their money, I talk to them about their purchase, but ultimately, it's up to them.

I look forward to reading more comments in this thread.

As a single mom of 4 kids on a limited income Im not sure how much is too much or too little to give my kids. I don't want to go over my budget but believe they do deserve something to give them the appreciation of money. One question I also have is do I give my autistic son an allowance and just put it into his savings? He never asks for anything and doesn't understand the concept of the dollar but does know numbers. Not quite sure about this. Any suggestions?

We also use the web-based Allowance Manager for our 8yo ($2/wk) and 4yo ($0.50/wk). They save up to buy their own toys or stopping at the gift shop when we go to the zoo/museum. They'll pay the difference on the cooler clothes or shoes. We have a new rule for the 8yo this year, she looses $1 from her account for anything she leaves behind at school: jacket, lunchbox, homework, etc. It's been a struggle and frustration for me in the past and I'd rather it be her problem, not mine.

Wow, what a great idea for an app!! My daughter is still young (3) but she does have chores around the house and loves getting "pennies" to put in her bank.

My 5 yr old so needs this - it's like mint for allowance.

If one good thing has come out of these hard times (and I think there have been plenty more than that) it is the pushback against the constant promotion of consumer debt. With so many tools available to help us spend, I'm so glad to see developers coming up with ways to make saving seem just as fun. And very happy to see it extended to our kids!

Oh, I totally need this app! My 7 y.o. gets $5 a week, but I think I'll take your advice and up it to $7. Of his $5, one dollar goes to savings, and one to charity. Last year he sent $50 to the Cheetah Conservation Fund b/c cheetahs are his favorite animal. He looked at their website and picked one to sponsor. It was a really good experience for him.

I'd love to test this out... been tinkering with an allowance system to help my son budget for his toys. Maybe this might work!

Our twins are just 6, but I think it's time to start doing some more management.. I like the ideas you have here and hoping the Kiddie Bank will help with that.

I cannot wait to try this out! I almost never have cash on hand to give to the kids on a regular basis. This app is what I need!

We actually gave our daughter a debit card when she turned 10. She's extremely responsible, and hasn't lost it yet (just turned 11 this weekend). Money is automatically transferred into her account weekly, and she can monitor her balance online through USAA's website. The only restriction on her spending is that she can't make purchases online without our specific approval. And we all agreed to a set percentage in each of four categories: Spend, Save, Give, and Invest. We take care of the Invest part for her, though. Couldn't figure out a way to do that automatically from her account since the balance was too low.

But she says she's saving for a car. She might do it too; she prefers saving to spending.

I think my soon-to-be 6 year old son is going to have a harder time learning his own lessons about money. He's much more impulsive.

I think the discussion of how to handle allowance required more time than the decision on whether to have children! We ended up very similar to Asha's system with the addition of a charity fund of 10%. Our rule for when they started getting allowance was knowing all the values of the coins. This translated into 4 years old for my older money obsessed kid and 5 1/2 for the younger kid.

We have added something this year which is WRITING down what they spent money on. Like Asha, we give NO judgement on purchases, but I think it will be important for them to look back at what they spent it on to see if they will start to make judgements. Without the writing down part, neither of us could remember what the money was spent on.

I love the idea of this app and would use it!

I'm always forgetting to give my son his allowance (we give half his age), and end up paying "in bulk" when I remember - not exactly the money management model we're hoping to convey! We strive not to judge his choices for spending it, but it's really hard to bite my tongue when I see him going for the impulse purchase or buying stuff I know will break in 5 seconds.

We just started giving an allowance to our 6 yr. old and are still trying to figure out the best way to handle money management. Saving vs. spending vs. charitable donations. I like a lot of the suggestions in this post. Thanks!

This is a super helpful post. Neither my husband nor I received allowances growing up, so this is something we've been talking a lot about. Thanks!

We spent a year with a chore chart system where the kids each had certain chores to complete to earn their allowance (and could earn extra money for extra chores). It worked okay, but the kids eventually started balking at the chores and didn't really care about the money. So we went to a "you do chores not to earn money but because I've asked you to and you ALWAYS get allowance no matter what" system. BUT...we forget to give them money and they forget to ask for it and we don't make them help as much as we should because it's just easier to do it ourselves. So really the whole thing has just fallen apart.

I'd definitely like to give this app a try and see if it helps us develop a new system that might actually work for us.

Great post - and some terrific ideas that I plan to implement ASAP! Thank you.

We do everything you've suggested with the exception of the APP - that sounds like a great addition. Our almost 7 yo is quite good with money and really understands the value of it after having been on an allowance since he started K. I can't wait for my littler one to start K next year so I can cut down on his gimme-itis.

My kids are young enough that I pay them in quarters (one per day if they do ALL their tasks). It's up to them to have their money with them if they want to buy something when we're out, which has it's drawbacks since they now carry purses everywhere, so that's one more thing to keep track of. I try not to do loans or advances. After an inital spending frenzy, they are now much more conservative and thoughtful in thier spending.

What a great app! I hadn't seen that one before - thanks for sharing the ideas!

I'd love to try this app! I've been wondering how to track an allowance for my daughter - she turns 4 next week and I'd like her to start learning about money. Thanks!

Our grandson would benefit from this application to help keep him on track with his spending. He frequently spends on little items -- i.e.gum etc., which quickly uses up his allowance before he realizes the money is gone -- instant gratification. It would be most beneficial for him to "see" the actual deduction as he's very astute with numbers. As his background hasn't been supportive of saving it would be good for him to have the deductions occur as his spending affects it. Visual re-enforcement.

My ten year old sometimes has more money in his checking account than I do.

This is a great article! I never had an allowance as a kid (parents couldn't afford to), but want to make sure that my daughter (now 13mos) does. Thank you for the tips!

I like hearing this perspective. We've done 1/3 spending (or short-term), 1/3 long term savings, and 1/3 charity, but this eventually seemed too difficult. Now it's 1/2 short term (-aka-spending money),with the other half split into 75% long term savings and 25% charity. Doesn't sound simpler, does it? It just seemed to make more sense because the charity piece has been hard to really get my kid energized around, though I didn't want to give it up. I like the idea of tracking allowance and spending electronically, since it's always a pain to keep track.

We discovered that we tended to forget giving the allowance every week. So, we shifted the responsibility of asking for their allowance to the kids. Allowance day is Friday. If they remember to ask for it Friday/Sat/Sun they they get their allowance. If not, then no allowance that week. They rarely forget to ask for it and I don't end up owing them a lot of money after 4 weeks of my forgetting about it.

We've been struggling with how much to give and when. I like the idea of $1 per year of age but then that put too much cash into their hands. I love the idea of saving half though and it cuts it to a more realistic amount plus they can see real results from saving. We're mean, we always say no to the little things and don't believe in paying for family responsibilities so allowance is a really exciting prospect for them!

Sounds good! I like the idea of a dollar per year of age, and half to save, half to spend.

We used to do allowance, but we always forget. We never have cash on hand. And of course the kids never bring their money with when we go shopping. In other words we have all the same problems! Thanks for the wonderful idea!

great ideas about allowances! We haven't started them yet, but our boys are getting to the point where we're thinking about them!

Love all the ideas. Our oldest is five but we have not implemented a sytem yet.

We haven't given our kids allowances, but I found one method that's better than an allowance: Give them *all* the money you would normally spend on their socks (then underwear, shirts, etc as kids get older).

That way, they can buy the snazzy stuff and get only 4 pairs for the year, or buy at Walmart and get 20 pairs. Anything left over they can KEEP.

This acts exactly like the adults: they become bargain shoppers and will put up with really cheap things just to have money left over.

I haven't implemented it, but it's worth a thought. And Kiddey Bank would be the perfect app to use for this!

My daughter is 5, so this would be a great way to start her off!

We are trying to be more intentional and consistent with our 4 and a half year old's allowance--he still measures everything in how many quarters it costs so we're still using concrete money for allowance--but I like the idea of being able to track his save/share/spend amounts via an app so that I know how much he has without checking the real piggy bank.

we have a similar philosophy of not tying allowance to the general maintenance of family life - we all share the work of keeping our home, so we adults share our money with our family. We pay extra for specific jobs. Tracking it is tricky, and even if I don't win the app, I'll probably buy it. Thanks for letting me know about it.

We started giving allowance with pre-school. We do not divide between spending and saving yet, most of the time the kids tend to save their birthday or christmas money.
We also tend to forget to give out the allowance and even my son forgets it sometimes, but for some time now we mark it on our family calender whether we actually gave out the allowance

We started giving our daughter an allowance sometime after she turned 4. We use the Money Savvy Pig mentioned in a previous comment. She gets 5 quarters ($1.25) per week, with the idea that she has to put a quarter in each of the four compartments. She chooses where the fifth quarter goes and if she chooses to place it in "Invest" then we match it with an additional quarter that also goes into "Invest". This is our way of teaching about interest, I guess, or the benefits of long- term savings. She always puts the extra quarter in there because she likes the idea of getting more money. We do have a tendency to forget "allowance day" though and will end up paying for two to six weeks at a time.

Would love to win this. Our kids are getting old enough to handle an allowance but I've not been sure how to implement it since we almost never have cash on hand. I like the idea of tracking it on the iTouch since it is always close by. Thanks for the opportunity to win.

We have a 5 year old and 8 year old. They each get a quarter for every year old they are every week, on Fridays (so the 8 year old gets 2$ in quarters). Luckily we have a big jar for all our coins in the kitchen, so we rarely run out of quarters. Occasionally, we'll go through and convert their quarters to dollars, which makes it easier on anyone they pay (no one lines 100 quarters).
Anyway, I like this method because they have to save up for what they want and they have to not only have money available, but have to remember to bring it along if they want anything.
We've found that this works pretty well for us. We haven't tied it to chores, however. They can work on something specific to earn extra money (like weeding or picking up sticks). We really haven't figured out a great way for them to have chores, whether tied to allowance or not. Everything I can think of seems like it would end up being more work for me. I'd love suggestions!

The grandparents are the ones messin' with our allowance system. They will sneak the kids money if they know they want something special or they will come up with ways for them to 'earn' the money the kids need to buy something they've saved for. I know it's with good intent, but we've had to squash the grandparents' intentions, and quickly!

Thanks for running this giveaway!

This if fantastic! My husband and I have been looking for something to motivate our 8 yr old and teach her about how money works in the real world. Does it allow for a family account or is it monitored on one phone?

Wonderful and thank you. I have wanted to discuss this topic with my wife.

We give our kids $.50 per year of age per week, but it was too hard to remember to give it to them every week, so we combine it all and pay them once a month (I use Outlook tasks to remind myself to do it!). So, the 10 year old gets $20 a month and the 6 year old gets $12. It is not tied to chores.

They put 10% in giving, 10% in savings (we'll be opening up a bank account for this soon), and the rest can be spent.

We also match their giving donations, so when they get a big enough sum, they decide where they want to donate it and we match it 100%.

We have thought about going a "virtual" route and tracking through a spreadsheet or application, but I don't think they really get the concept of how fast money can disappear if they don't actually have to hand over the money and see their "pile" disappear.

We do make loans though when we're out and about and they don't have their money. This does cause the issues when we forget to make them pay us back right away.

I like the idea of giving them a debit card when they're old enough, but my 10 year old loses everything - or she never has her money with her, so I'm not sure she's there yet.

Awesome! We have some of the same issues with allowance that you mentioned. This would be a big help. Thanks for a chance to win.

That's an awesome idea for allowance. Half the time I forget, only to be reminded 3 weeks later that I "owe" someone 2 weeks of back-pay... I like the check register idea too, especially for the oldest. Head start on managing your accounts yourself.

My kids aren't quite ready for this yet, although we've begun a small version of this for the almost-4-year-old. As far as tracking, I'd probably just do a spreadsheet myself, but sometimes those can get a little clinky on a cell phone, so trying something else out would be nice.

I'm personally interested in whether or not someone has had any success with a need/want method rather than a regular allowance? My biggest problem with an allowance is that it's not realistic. You don't get money "just because" (I wish!). I'd like for my children to be able to say "I want such-and-such" and for me to ask them to do something "extra" or do a chore that I would normally do. This requires budgeting and planning. And if it's a "must-have-now" situation, then they could get a loan that they would have to pay back by doing something, and they would never see that money. This seems much more life-like to me, but has anyone tried it? Would it actually work? What are the benefits of doing an allowance alongside of this or instead of this?

We are on the cusp of embarking on this allowance journey. I think this app would be great for my 4yo. Many thanks!

Cool app for those who want to share their iPad ... I'm kind of stingy with mine ;) so we use Google Docs for tracking money in the Bank of Dad ... shared as with the kids (who got gmail accounts for their 7th birthdays) as a non-editable file.

Also, I agree that amounts should be enough to be real, but when our income decreased by nearly half in 2009, we elected to do the same to allowances - a dose of harsh reality. It felt awful to do, but at the same time, the total was enough to pay the phone bill.

Justin, I don't think basing income on "need" is realistic - many, many people don't have enough to buy even the most basic necessities - but basing it on willingness to work is definitely modeling adult reality. We treat allowances as "Salary" - you perform at a minimal level (i.e., chores, grades, etc.) and you get paid a minimal amount. If you want more, you do more.

OMG this is exactly what I need! I am tried of my kids nagging on me to give them their allowance because I keep forgetting. Not to mention the hassle when they want to buy something but forgot to bring their money along!

I need this TODAY! Son has decided that we owe him at least $380 since he hasn't gotten an allowance in a few years. (Not that he's wanted for anything.) Let's make HIM keep track! Thank you!

We've been struggling with allowance issues for a while- we are putting this hack into practice right away! Thanks!

Great ideas, both in the article and the comments. When I was a kid I didn't get allowance. My money came from holiday and birthday gifts plus household chores occasionally. Anything that I wanted that was considered 'big ticket' (ice skates when I was 7, a car when I turned 15), my parents split the cost of with a top end limit and I could borrow my half with minimal interest against future 'earnings'. I plan to do the same with my kids, who are still babies. Having to come up with 1/2 of everything I wanted went a long way toward my money education.

This is a GREAT app and suggestions on your site. I've had problems implementing a money mgmt system (giving and monitoring ) with my 2 little girls. As a single parent, its tough!

Great post! We use EEBA (Easy Envelope Budget Aid) https://www.eebacanhelp.com/login.php. We use this for all of our 'virtual envelopes', including our son's allowance. It's a fabulous app for Android and iPod Touch.

I liked this article, so I discussed it with my wife and we are doing allowances like discussed. I bought Kidde Bank, but I didn't fall in love with it.

So instead, I set up a Google Spreadsheet and learned a little javascipt / apps scipt and automated it. Each Friday, my script is triggered, which adds the allowance to the "account" and emails the kids with their balances. They also have a read-only link to "check their balances".

Fun!

We use the free website called Allowance Manager (http://AllowanceManager.com). It's SUPER easy to use, and keeps us all on the same page! In the interest of full disclosure, I work for the company, but I applied for a job only because I loved the product so much.

My husband and I recently joined a great allowance service for our 8 year old son called KidsCash (kidsca.sh). My paypal is charged 20 bucks a month for him to spend, save, or donate as he wants. The website incudes a store with games, toys, and even iTunes giftcards which he enjoys the most. We can monitor his actions through our account and the site is very kid-friendly. After all, the only way kids will learn and understand money is by budgeting money of their own.

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