How allowances can teach children to save money
Allowances can help children master one of the hardest lessons of personal finance: managing and controlling personal desires.
“An allowance is not a salary or an entitlement. It is a tool for teaching children how to manage money.” – Joline Godfrey
When our oldest child turned four years old, we started an allowance system. Each week, we gave him fifty cents per year of his age (so, $2 as a four year old). He had a piggy bank with four slots – one for spending, one for saving, one for giving, and one for investing.
At first, he mostly put money into the “spending” slot. We required him to put one quarter minimum in each slot, but after that it was up to him, so the remaining quarters were put in there to spend. He found lots of little things to buy at first.
After a while, though, he began to start appreciating the “saving” slot. He saved up for a $50 toy over the course of several months when he was five years old, which was truly impressive to myself and my wife.
His younger sister watched this and, when she turned four, she started an allowance as well. She didn’t even really go through the “spending phase.” She just started saving immediately for larger toys.
After a while longer, the children stopped asking for their allowance each week. They wanted us to keep track of the savings on the calendar by marking allowance days. They continued to set big savings goals – I remember our daughter saving for a giant LEGO Friends kit and our son saving money for a game – but it wasn’t something urgent for them.
When I talked to them about this, they told me that they had lots of stuff already to play with, so there wasn’t much that they wanted.
Lately, though, we’ve reached another point. They no longer even seem to be saving for goals. I asked them just yesterday if either one of them was saving their allowance for a specific goal. They said no.
I then asked them what they wanted to do with their allowance. They both wanted to split it up in some fashion among charity and investing.
They no longer have a desire to spend money just because they have some cash available to them. I could not be more proud.
Here’s a confession: I would have never, ever done this at their age. If there was money available to me, I would have spent it on something. There was always a long list of items that I wanted.
I’ve been trying to figure out what the difference is between my situation and theirs. One part is that they have siblings close to their own age, giving them someone to play with at home instead of having to entertain themselves.
I think a much bigger part of it is how they spend their time. They don’t watch much television at all, and what little they do watch is commercial-free stuff, so they don’t really have a lot of commercial-fueled desires.
They mostly play outside when the weather is nice and build lots of LEGO castles and draw when the weather isn’t so nice. This is more or less what we encourage them to do.
When they play with something, they usually play with it over and over and over again, exploring variations and mastery of it, instead of moving on to something else because, frankly, that’s what they see us doing. Sarah and I have a small number of hobbies and we stick with them diligently.
Whatever the case, they’ve already seemingly mastered one of the hardest lessons of personal finance: managing and controlling personal desires.
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