The concept of giving my kids an allowance bothers me.
“You exist therefore you get money.” That concept doesn’t work in the real world. Why would I want to teach that to my kids?
My children are only 5 and 3 (or “5 ¾” and “free” as they would say) so there’s still quite a bit of time to cement our parenting strategy around chores, rewards and helping around the house.
My 5-year old, Zoey, has been doing small chores around the house for the last year. Instead of an allowance, we give her a dollar for each chore she completes. Three chores per week nets her $3. Not bad for a 5-year old!
The chores aren’t too difficult and she’s really starting to grasp the concept that hard work equals reward. I’m new to this whole “fatherhood” thing, but using the term “Chore Money” instead of “Allowance” just seems right to me.
To further convince myself I’m headed down the right path, here are 5 reasons I dig the term “Chore Money” over “Allowance”:
1. Understanding where money ACTUALLY comes from
Throughout my career, I’ve found the more effort I put in, the more rewards I receive. The same goes with Zoey’s chores. We tie her contribution around the house to a monetary reward so that she starts to understand the correlation.
If she helps with the chores, she's get paid.
If she doesn't help, she doesn't get paid. Quite simple really.
As we're trying to teach our daughter the rules of life, we've found “the simpler, the better” rule of thumb works best. That goes for brushing her teeth, the amount of time she gets with the iPad and the amount of “treats” she can have. Our daughter craves rules and boundaries. When there is a vagueness to a situation, she kinda freaks out.
I do agree with Joseph Hogue, CFA from Peer Finance 101 that there are some chores that should be done without compensation. “Kids need to learn that there are some things you do around the house just because they need to get done,” said Hogue. “A family works together even if the rewards aren’t as tangible as getting paid.”
2. Comprehending that money is a finite resource that should be carefully spent
A few weeks ago, we went to a kid play place where they had bounce houses and video games. Zoey brought $5 of her own money and she was able to use it for games until she ran out of money. We definitely warned her of this rule before letting her run wild.
30 minutes later, Zoey came up to us and asked for more money because she was all out. We stuck to our guns and told her, “If you’re all out of money for video games, you can play on the bounce houses. Those don’t cost any money.”
She wasn’t thrilled with our response, but after some moping and whining she got over it.
We’re confident that over time, this concept will sink in. She’s only 5 right now, but we’re hoping that she’ll recall moments like this and remember that money is finite. There is no money tree that will give you cash when you want it.
She’ll always be clothed, fed, loved and have more privileges than most children in the world, but she won’t be getting a new toy whenever she demands one.
We’re hoping these hard lessons will help her to become a successful young woman and help her to remain debt free in the future.
3. Providing MORE value gets you more money
If Zoey is hard pressed for more cash, she always has the option of doing additional chores around the house to earn another dollar.
Some of our standing 5-year old appropriate household chores are as follows:
- Picking up toys in the basement
- Wiping down the kitchen counters
- Vacuuming the kitchen
- Putting away her laundry
- Vacuuming our cars
- Putting away the silverware
For each of these chores, my wife and I are right there alongside her as she’s completing them. It's something we do as a family (nearly) every Saturday morning.
4. Sparking an entrepreneurial flame at a young age
I have no issue with Zoey wanting the newest toy, an upgraded bike or even some candy at 5-years old. That desire to get what you want out of life could help her become a successful entrepreneur.
It all starts with providing value. If Zoey is able to provide value through her chores at 5-years old, I’m very hopeful that she’ll carry that same spirit into her teenage years and adulthood.
By connecting a reward with the value she’s providing, we’re setting her on a smart path toward entrepreneurship. We want her to think, “How can I provide the most value right now?” With that mindset, she’ll not only be monetarily rewarded, but she'll be emotionally and spiritually rewarded as well.
5. Saving becomes a habit early
I wrote a letter to my 20-year old nephew recommending that he start saving 50% today so he could reach financial independence by his 37th birthday. My goal is to get my daughter started with saving and investing much earlier than 20-years old.
When you’re a saver, you have options. You can more easily pursue your passions and live your life on your terms.
Each time Zoey completes her three chores, we place one of the dollars in her Save Jar. Right now at 5-years old, we’re using this jar for larger savings goals like a new Disney Lego Set.
I’m thinking that I may need to add another jar called “Investing”. After speaking with Cameron Hendricks, CFP on the options available for investing for our children, I’m excited about the possibilities of building an incredible life for my daughter with a UTMA and a 529 account.
And of course, I'm thrilled about building a great life for my 3-year old son Calvin too. We don't have chores for this guy yet, but he is definitely watching his sister work hard for the family and eagerly wants to join in.
So Andy, I’m curious – have you changed your perspective on this, based on the recent podcast episode?
Yes, I love talking with other parents who have different perspectives so I can learn and modify our parenting style.
Here are a couple things we’ve adjusted since speaking with John Lanza:
– Our kids now receive $1 based on their age ($7 for my 7-year old, $4 for my 4- year old) and this keeps it easier for all of us.
– Each kid gets three chores to do every Saturday morning (as they get older, the importance/difficulty of the chore grows)
– I’m a big fan of his “Breakthrough Allowance” idea … we’ll definitely be trying that when Zoey gets to be a pre-teen
We don’t give an allowance either. They have to pitch in at home without pay. 🙂
If you’re working hard, then they can join along. That’s family!
Hi Andy, we did a mix of both and my kids are pretty responsible with money now. Keep it mind all kids are different and you may have to adjust your thinking slightly for the second one. I wrote a post a few weeks back if you are interested.
Very true – my little guy Calvin might not be as motivated by money and praise as my daughter has been. It’ll be a fun learning process over the next 5-10 years. Your point on flexibility is well taken!
There are many times in life where you are the steward of money that you did not earn directly. Examples: when you manage a corporate budget derived from sales you did not directly generate, when you manage a household budget and your the “nonworking” spouse (please note the quotes!), when you manage a windfall like an inheritance or monetary gift, and so on.
Giving your child an allowance does not need to translate into: “You exist therefore you get money.” Instead, it should translate into: “We all must learn to be thoughtful stewards of this limited resource called money.”
If you replace “allowance” with the term “budget”, I think you’ll see it through a different lens. “I’m teaching my child how to manage a budget.” Now that sounds like something all parents should want to teach their kids.
Concrete example: Giving my daughter an annual clothing allowance for her to manage in high school was one of my smartest parenting maneuvers in retrospect. The money was “free” in the sense that it was completely disconnected from work/chores, but the experience was priceless.
By the way, I think the lessons you’re teaching your kids above are fantastic – like the “bounce house” lesson. Love it! I’m just making the point that a thoughtfully managed allowance can teach oustanding financial lessons as well.
I personally like a hybrid system of: unpaid chores that are just expected for any contributing member of the family, paid odd-job opportunities to earn extra through hard work, and budget-based allowances for specific categories like lunch money or clothing or even just “stuff” for younger kids (as long as it’s modest).
Lastly, a big AMEN to the Roth IRAs mentioned in the comments by Rocky Lalvani. We’ve done that with each of our teens as soon as they nabbed their first W-2 paying job helping them to max out their contribution with gifts (“Family 401k” as dubbed way back when by personal finance writer Dan Kadlec). Fantastic way to incent your kids to work, introduce them to investing, leverage tax-advantaged accounts, boostratp their retirement savings, and gift them money in a constructive way early on rather then having them hanging around waiting for you to kick the bucket 🙂
I love this. You’re opening my eyes Bill! I like how you use the word budget instead of “allowance”. Perhaps it’s the word allowance that irked me so.
The hybrid system makes a ton of sense. There will be categories that Zoey will need to manage on her own soon enough.
I love the Roth IRA conversations that have sprung out of this article. I’m looking into this next year for sure!
Hi Andy, I’ve been enjoying your blog for a few months now. This post gives me a chance to brag on our kids and share some ideas. We have 4 homeschooled kids. (6,8,10,12) They have been “working” since before they could walk, pushing laundry baskets and picking up toys. A few years ago we started our version of “Family Dollars” where they earn “dollars” based on what chore they are scheduled to do or any extra ones they do. Then they can trade them in for real money or continue to save. At this point they all earn several real dollars worth per week, and the chore load around the house is spread out making it easier on all of us.
Most of my kids are savers already and my 10 year old wants to buy his first house for cash. I think he’ll do it too. He has invested in a painting business and bought his own piece of farm equipment to rent out.
The 8 year old is usually first awake and often is doing extra chores(sweeping, cleaning play areas) before the other kids get started.
The 12 year old is the only girl and she has been making the boys lunch since she was about 7 or 8.
The three oldest kids are proficient at playing “CashFlow 101” and don’t need any help when we play as a family. That has taught them a lot about saving/investing and I highly recommend it.
PS. As I write this (before breakfast on Sat) the three boys are playing a game where they earn money for doing push ups. Wish I could get motivated for that kind of game! lol
This is incredible! I want to be just like you when I grow up Ken. The lessons you’re instilling in your kids at this young age will put them on the fast track to success. Keep up the great work!
Thanks Andy, I like the idea of starting Roths for them. I am going to explore that for the upcoming year.
I’ve gone back and forth a lot on whether to strictly pay my children for chores or an allowance system. Right now, we’re paying half their age in allowance weekly and give them opportunities to earn more money if they want through chores. I’ve found it to be a good compromise. They have to use their own money for everything that isn’t a necessity (Scholastic book orders, buying breakfast at school, all toys, etc.).
I’ve been using FamZoo to automate this for me and I love it. I especially like that it’s a card-based system for the spending portion of their allowance so that they learn that spending on cards is still money. I’ve also set up (in Famzoo) to pay them 1% per month in interest in anything they set aside in their account for savings and that adds up fast enough to encourage them to save.
I’m excited about using something like FamZoo or Greenlight when my kids get older. I love the fact that it’s all automated. These three jars I have (Spend, Save, Give) don’t really help our kids when we’re out and about shopping. I love learning from you! New topic for our next lunch!
Would you expect your kids to learn to play golf is you didn’t give them a golf ball?
I wanted my kids to learn about money and to remove all the obstacles and “fights” that come along with complicated chores and other methods. They receive their age in allowance, with the following rules: $1 charity – half to spend half to save. While it’s money for nothing they are expected to do more. Being part of the family means you help out anyway. If you want to earn more you can but it’s up to you. We also stopped spending at the store for candy and toys because now they have money. It’s worth the money just to not have to deal with that alone!!!
My kids are 15 and 17 now – and they have stacks of cash. They stopped spending in an out of control, “I want it”, fashion. Over the years we have had lots of money conversations as we taught them to save and spend. Money mindsets are created between 5-12 and too many rules create complications. Were we perfect? NO!!!
As for the savings we told them it was for long term – maybe to buy a house or retire. If they wanted a car or to go to college they had to save seperate for that and figure it out. We don’t have 529’s for the kids but they do have Roth IRA’s. It’s all about perspective.
My kids are savvy shoppers and don’t buy much. They especially don’t buy expensive clothes or expect much from us when they need stuff. It’s hard to raise grounded kids when you are a millionaire and live a rich life.
Great perspective! I like how you said they are expected to help around the house – it’s just part of being in your family. I totally agree.
I need to research how to get Roth IRAs going for my kids in the future. Compound interest wins!
Aren’t those pictures of your kids above? Why not pay them for that so they have earned income. Now they can open a Roth!
Tell me more!
I don’t believe there are any age requirements. You just need reasonable earned income. So how much would you have paid another kid for those pictures? You will have to look into rules around if you have to pay FICA tax – since it’s family maybe not. They probably won’t have to file a tax return if you keep the dollar amount below limits. https://www.irs.gov/publications/p929
Roth IRA’s also don’t show up on FAFSA forms. (I think)
I pay my kids to mow the lawn, write copy for my site and other tasks. They earn reasonable wages for the job done which creates the earned income. That’s all you need for the Roth. google “I gave my kids $200,000 for Christmas”
You can write an “offer letter” for your kids to document with a reasonable rate. You should definitely fill out the tax forms for them so that there is a solid paper trail, even though they likely won’t owe any taxes.
They do NOT show up on FAFSA (currently no qualified retirement accounts do), and all earnings can be withdrawn tax-free to pay for higher education (since it’s a qualified expense). 🙂
This is excellent advice Kristine! Thank you very much. I think our kiddos have already been on-air talent, video talent and voice talent. Now that this business is generating an income, it all makes sense to take advantage of.
We give our son an allowance. Paying for chores didn’t work out. He decided that he could go without the money as long as he didn’t have to do any chores. He is 9 now, but that was when he was six, I think.
For the past three years or so, he gets a weekly allowance equal to his age. Half of it is automatically saved for his college fund. Any amount he chooses to save in addition to that is matched by us – to encourage savings. It is working well. He has already saved up over 1000 dollars. It helps that the tooth fairy sometimes pay a lot since his I never seem to have any low denominations.
This is the type of feedback I was looking for! I’m very inspired by your “matching” program with your son. The fact that he has $1k saved up when 34% of our country has $0 saved (recent CNBC article) blows my mind. Congratulations on your parenting win!
The chores are now done. The way I explained that was no one pays me or his dad to do everything we do. Then why should he get paid?
I think what works will depend on the child. If your system works, stick to it… Now you are aware of how it could break down…
Totally agree! Do what’s best for you and your child, right?!
My daughter is 7 and she has to clean her own bathroom, down to the toilet in order to earn anything. She also has to help me clean the floors, etc and pick up dog poop plus make sure the dog has water. We give her actual bills and then she has to understand how far they go when she wants to spend it. She usually opts not to spend it, she dislikes to see it disappear! Haha! I do send $25 into her savings account weekly, I am thinking of putting that into an account like Betterment or something.
I love it. She’s going to be a responsible, hard working adult. Great work Cristina!