Recently, I have noticed a lot of discussion around children, money, and allowances.

Dianne Nice and Sonali Verma wrote a couple of interesting articles in the Globe and Mail on the subject, and the Suddenly Frugal Blog discusses kids and money in the context of a recent TD Bank survey.

It could be because April is National Financial Literacy Month in the United States. On the other hand, maybe it is because we just came out of Spring Break where parents were dipping into their wallets a lot to keep their kids busy.

Regardless, it is a popular topic in our household, so I thought I would share how my partner and I introduced allowances into our home.

Our allowance system

My kids are four-and-a-half and two, and they have both have an allowance. Earning the allowance, however, is optional, fun, and (we think) beneficial for everyone.

We started our allowance system with our eldest about a year ago.

At the time, we saw that he was starting to ask for things (treats, toys, etc.) when we were out shopping. He was also developing a keen interest in money, picking up and pocketing every coin he found with great fanfare and depositing it into his piggy bank.

Noticing this behaviour, we thought an allowance, accompanied by a chart that outlined chores and tracked his progress, would be good way for him to understand the value of saving and spending.

Before introducing the allowance chart, we set some simple ground rules:

  • Chores would be easy, achievable, and practical
  • Doing chores is optional, not required
  • Nothing is based on behaviour (ie. going to bed on time)
  • Each chore is worth five cents
  • Stickers are put on a chart for every completed chore

Flexibility and a new chore

In the end, we settled on four chores for each weekday – putting away dishes (anytime during the day), putting dirty laundry in the hamper (a pair of dirty socks counts), putting away toys before bed (some, not all, is okay), and making the bed (to the best of his ability). Finally, we left it at only the four chore for Saturday and Sunday.

After a month or two, we found bed-making was too hard, so after some discussion with our eldest son, we altered his chart. We ended up splitting putting away dishes into morning and evening dishes. In addition, to our surprise, he asked “getting ready in the morning before daycare” to be added to the list, which we all agreed would be worth 10 cents.

We added the chore to his chart a couple of weeks ago, and he has got a sticker every day so far. The two-year-old still has the original chart.

Since the eldest now knows the difference between five and ten cents, he is super keen on getting ready in the morning. I think he also appreciated the fact he was involved in developing a new chore for himself.

How it’s working

When we first introduced the chart, we were not sure how it would go. But, after about a year it’s been great for all of us:

  • Our eldest is learning about numeracy (he counts his stickers and tries to add), savings, and the value of money.
  • Our youngest is getting a sticker here and there, so he is able to participate when his older brother is loading up his piggy bank on payday (Sunday nights).
  • My partner and I are benefitting from our son helping with out a few things, making our lives a little easier.
  • Our eldest plans his purchases, putting gift money from relatives together with his savings to get things that he wants (he has bought a couple of toy trains to this point, and he’s planning another purchase in the near future).
  • When the eldest asks for treats at the grocery story, it is much easier to explain to him that we use our money to buy the groceries we need to stay healthy (we don’t make him buy his own treats, we just try to keep them to a minimum).
  • We have interesting discussions about money – how we make choices, saving money, donations, etc.

Final thoughts and interesting links

I am not sure that there is any magic age or formula to introduce an allowance system.

This is just what works for us. And, if we need to change it to adapt to our youngest son’s needs, we will. I think more important than the systems and charts is to be creative, flexible, fun, and involved when teaching young kids about money and savings.

Suggested Reading

BCSC Releases Research Findings on Canadian Investors

Madoff on Madoff: His recent interview with the Financial Times

Investor Watch: principal protected notes (PPNs)

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