Tuesday, September 29, 2009

Cold Hard Cash

Just for being in our family the children get approximately $1 per year of age (after reaching 5 years old) each month. It gets divided into fourths and divvied out weekly. For example, one child is 9 years old. I take 9, divide it by 4 and come up with 2.25 a week. I could have used a more accurate monthly-allowance formula: age * 12 / 52. That would, however, come up to $2.076923 for the same 9-year-old. I don't mind the extra 18 cents a week to nicely round up the allowance payments into quarters. And having all those quarters turns out to be important as you'll see.

Why don't we give them a dollar per age per week like the "average" American family? Well... we don't want to give them too much because learning to save and plan for specific "goal" purchases while developing the behavior to fight off impulse purchases work best on smaller allowances. If they could get away with buying impulse items and still get their "goal" item in a short period of time it wouldn't have the same effect.

Here's the "catch":

1. Necessities come from Mom and Dad. Splurges come from your allowance. They were good about not asking for extras before, but now they are ready to learn to ask themselves the value of what they want to purchase.

2. 20% is put in a savings account. 10% is donated and 70% is for whatever the child decides. We help the child learn about saving up their 70% for the toys they want.

3. Chores that aren't finished by a given deadline go up to the lowest bidder who has already finished all his/her chores. The person who was supposed to perform the duty must pay the lowest bidder. For example, if child A doesn't want to wash the dishes, children B, C and D offer their bids to do it. Child A then has to pay the lowest bidder their asking price. It's capped according to the chore and immediate need.

We first tried giving them all the money up front at the beginning of the month. All the excitement fizzled out by the end of the first week.

That's why we divided their age by fourths, then hand out that amount each week (they make a little more money that way, but I don't care as long as they learn good lessons with it).

They can occasionally get paid bonuses for chores that Mom or Dad forgo, provided they have already done their chores. This further motivates them to be done so they have that availability.

Using this method they learn about saving, spending, earning, preparedness, frugality and charity. So far it's working well. We adapted the idea from Jim Fay's Love and Logic.

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