Chapter 6 Allowance & Financial Extras

            Some families only give out money to their children as compensation for jobs completed.  Some may call this an allowance, but a true allowance is an allotment of money given out on a regular basis.  When you decide to give your children an allowance you should determine the purpose and make sure your policies governing distribution support your purpose.  In our family the purpose of an allowance was to teach our children to understand and manage money.  Their allowance was not a large amount of money and its distribution was not tied to any jobs or tasks.  Our children were required to pay a contribution to the church (a 10% tithe), however beyond that they could use the money any way they saw fit.  The amount they received was set by their age (they received 25 cents per week for each year of age) and so they were given an automatic raise each year. 

            Sometimes my children had regular jobs that they did each week and were paid for.  These funds were tracked in the same manner as the child’s allowance, however this money could be docked if jobs were not done correctly.  Allowance, on the other hand, was paid out just because the child was a part of the family.  This assured that each child always had a small, steady income.  This way everyone was assured an equal chance to learn about money management, delayed gratification and prioritizing.  This also allowed us an easy way to distribute some of the family resources.  When we took our children to the store and they wanted to purchase an item we would ask them, “Is this something that you want to spend your allowance on?”  This put the burden on the child rather than the parent to determine if an item should be purchased.  If the item was too costly, then the child would need to save their allowance or do extra jobs before it could be purchased. 

Because our family allowance was so small my husband and I always had extra jobs available to earn extra money.  Jobs included work in the yard and house that were not part of the regular chores.  We would usually provide a range of jobs with varying difficulty and monetary rewards available for the child to pick from.  We were very generous with what we paid for extra jobs, and usually paid by the job rather than the hour.  This assured that the job was done adequately rather than time just wasted.  If a job was not done adequately the child could choose between doing a better job or earning a lesser amount of money than originally agreed upon.

Families should designate a day as “pay day” and allowance should be distributed on that day.  Policies should also be developed about taking an “advance” or borrowing money from siblings.  Sometimes this gives a good opportunity to teach about buying on credit, but do make sure to develop policies about how much can be borrowed, for what and for how long.  Allowance distribution and spending can be tracked many different ways.  Probably one of the most effective, yet difficult, ways to manage allowances is to pay out the actual cash to each child each week.  This is very effective method because children have responsibility to keep track of their own money and bring it with them when the family goes on an outing.  They are able to feel and see the actual money.  With this method children also feel the natural consequences of forgetting or losing their money if they cannot make a desired purchase.  This is a very difficult method, however, because it requires that parents have the correct denominations of bills and coins on hand and it is time consuming to dispense cash each week.  This method also requires that each child have a place to safely keep and carry their allowance, which can be very challenging with young children.  One way to make this task easier is to only dispense allowance once a month.  The drawback of this method is that children have less of an opportunity to save for an item and more of an opportunity to lose or misspend their allowance.  Also, a month is a very long time for a young child to wait for another allowance day. 

If you do give out cash for allowance be sure to have some sort of record of when you dispensed it and to whom.  It is easy to give out a few quarters each Friday when your children are small, but as your children grow and life becomes more complex it is easy to forget who was paid when.  And if dispensing of actual cash for allowance is not successful for your family you can always go to a paper and pencil method.  Of course you will always need to give out some cash to your children for spending money so do find a method that works for you to collect and store small denominations of cash.  Some families find it best to go to the bank on a regular basis and withdraw the required cash.  In our family we found it easiest to collect small bills and change from our pockets and wallets each night.  That way we also had some small bills to use for allowance money as well as lunch money or other needed expenses.

There are several methods that can be used to track allowance accumulation and distribution.  I found that my yearly desk calendar was an effective method.  In the back of the calendar there was a section for expenses.  I converted the column names to my children’s initials and kept a record of money available or earned and money spent.  This method worked so well for me that I continued to use it when my kids had more complex expenses in their teen and young adult years.  The drawback to this method was that it was not very portable.  If my calendar was at home I had no way of knowing how much each child had available to use.  If I was organized enough and had time I would often write down available funds for each child before an outing.  I would then write on the receipts who had spent what money so that it could be recorded at home.  Often I would simply slip the receipts into my calendar so that I could record it later. 

Some families have found it useful to use a more portable system to keep track of allowance and other available funds (see more on this in chapter 5 on clothing points, and chart in Appendix A).  With a portable allowance tracking system all of the child’s available funds can be kept in a compact, portable fashion.  It can also be used to write down exactly what is spent by each child so a running total can be kept.  A portable system can also be developed that the child is required to keep.  This can be made from a small pad or notebook and available resources and expenditures can be recorded in the notebook.  This can be made more portable by placing the pad or notebook in a small purse or bag that the child can carry on outings.  The child would be responsible for keeping the recording device and bringing it on outings if she wanted to spend money.  Of course the problem with any portable system is the risk of losing the tracking system.  For our family I found that portable systems were a good tool for short-term use.  However, for the long term my calendar, which never left the house, was the best option.

Beyond allowance, families should develop policies on what items or activities parents will “pay for” and what expenses are the children’s responsibilities.  Of course, ultimately the parents will pay for all of the expenses as young children have no ability to earn money outside of the home.  However, requiring children to “pay for” some of their own expenses helps parents determine the child’s interest in an item or activity and helps parcel out family resources.  As our children grew we realized that there were many activities and items that were beyond the scope of them to pay for with their allowance or small jobs around the house.  We wanted them to contribute in some way to the cost of classes, lessons, team fees, uniforms and costumes, but the fees were beyond their ability to pay.  My husband and I, therefore, came up with a method that allowed our children to prove their interest, and earn participation, in an activity.  We figured out an hourly wage that my husband (the primary wage-earner) earned.  We then translated the fees for teams, lessons or uniforms into an hourly amount based on this wage.  If our children were willing to put in that amount of time around the house or yard we knew that they were really interested in the activity and we were willing to pay the fee.  If they were not interested enough to work, then we knew that this activity was not of importance to our child and we would choose not to invest our money.

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