The Opposite of Spoiled: Part 2 – Allowance

The Opposite of Spoiled: Raising Kids Who are Grounded, Generous, and Smart About Money by Ron Lieber (Part 2 – Allowance)

Ron Lieber has a whole chapter on allowance in the book, The Opposite of Spoiled: Raising Kids Who Are Grounded, Generous, and Smart About Money. This chapter talks about:

• When to start,
• How much to give,
• How to do it.

A good question Leiber asks is,
“What are we really trying to accomplish with an allowance anyway?”

The main reason for an allowance is to teach our children to save and spend, learn through experience how to make money mistakes and learn money lessons when the dollar amounts are smaller.

One of the primary virtues or values that we want to teach with allowance is patience. In today’s “instant” everything society, learning patience and delayed gratification is a worthwhile lesson. (We, ourselves, and our children take for granted the instant access to most everything these days – finding the answer to most questions, finding and watching a movie or show, even access to bathrooms in larger homes, etc.)

Lieber recommends that the allowance NOT be tied to chores. I have heard this many times before. Our children should do chores because they need to be done and are contributing members of the family. If the allowance is tied to chores, then the focus is more on the chores than the important lessons around money. A child may decide they don’t want to do the chores and don’t care about getting the money/allowance. You still want your child to do the chores. You still want them to learn the lessons around money. You can pay extra for the unusual or non-standard chores you don’t expect from your child. Hopefully, your child will learn the virtues of contributing and working hard in other ways and with others.

Like most other books and articles I have read, Lieber recommends, especially with young children, having three clear containers – one for Spending, one for Saving, and one for Giving. You want a clear container so your child can see what is in them. He also recommends starting in first grade at the latest. He says you can start an allowance once a child can count.

Lieber’s rule of thumb was 50 cents to a dollar each week for each year of age, with raises on birthdays.

For me (and I assume for many of us), the tricky part is to decide what you do or do not pay for as the parent and stay consistent with this.

Another question is, what do you ban your child from buying even if they have the money to buy it? As children get older, families in the book vary widely in what they decide to have their children pay for. Some made them pay for almost everything – clothes, gas, insurance, etc.

You want the allowance to provide enough so they can buy some of what they want and still must make some choices because that is life and part of what we are trying to teach about money.

The next part of an allowance is a system for tracking and storing the money, especially as they get older. The Spending jar is for spending soon (think impulse buying), and the Giving jar is for giving it to people or a cause that needs it more than you do. The Saving jar is used to buy something later. You want them to save up for a while to buy something bigger.

We messed this up. We did the three jars and had the savings towards a far future goal. My boys said it was for “college,” which was too far away (10+ years) and felt unrealistic. This money was eventually put into a savings account at the bank.

I thought the lesson was not to spend everything you have and to learn always to save something. According to Lieber, this did not teach the correct lesson. (Although, for the record, I still think that this is a worthwhile lesson.) The book said that savings should be used to buy something bigger they want and must save up for, hopefully, achievable in a few months to a year.

Lieber recommended keeping things simple when they are young and dividing the money equally between the three categories. We started our allowance at 4 dollars and had $2 go to Spending, $1 to giving, and $1 to savings. Eventually, as your child gets older, they can decide how to divide it.

Some families give generous interest (like 25% for under $100) or a percentage match to encourage savings. Some parents charge a “tax” to live in the home.

Making an allowance is a commitment, and we have not done a great job following through within our household. We have been streaky.  And with hindsight, I see that this was not helping with the lessons of learning with money because we were not giving it to them.

Especially when the kids are young, I recommend paying the allowance in cash, as you need to have a lot of smaller bills and actual cash to give. At a certain point, going virtual may make sense. Some sites and apps help with this, such as GreenLight and FamZoo.

There is also the question about when to open an account at the bank for your child(ren). You don’t want the savings to feel like a punishment where the money is gone forever, which is what we have been doing. At a certain point, your teenager may want to save for something big like a car or need it for college.

Lieber does not recommend credit cards unless they are for emergencies. He recommends a debit card so your child learns they must have the money in the account to spend it. Don’t enable or teach the use of buying things on credit.

I know for us, our boys will want something, and then when I say, if you want it, you can pay for it with your spending money, and then they often say, “No thanks.” They don’t want it badly enough to spend their money on it. They are ok spending our money but not their own.

Learning to define a need versus a want.
This concept is not quite as black and white as you may initially think. Clothing is a need, yet there is a limit to how many clothes we need, and the price range for these items can vary significantly. We still buy our boys’ clothes and shoes.

At the shoe store, my son wanted an expensive (“cool”) pair of running shoes. I told him I would pay for what I considered the normal price of running shoes, and he would have to pay for the rest with his own money. He chose not to get the expensive shoes.

Deciding the price limit you are willing to contribute can be tricky. The author of this book used the same concept and used Land’s End prices as their “standard” for clothes. Deciding on a standard, communicating it, and sticking with it is important. Children can be creative and find ways to get what they want (thrift stores, garage sales, etc.) to save where they don’t care about something and / or get what they want cheaper. I like encouraging this creativity and effort. This is where some parents gave their children a clothing budget to decide where and how they wanted to spend it. Every family will do this differently. It takes time and effort to plan and communicate ahead of time what you will and will not provide for your children financially.

In the book, Lieber met with and interviewed many families and presented what various families did. Some examples felt extreme to me, yet they got me thinking and open to new ideas. One financial planning parent said, “My recommendation would be that if a child is asking for responsibility around money, give it to them.”

There is no “right” way to do things regarding money and teaching money lessons. If you decide to go the allowance route, what is important is to make sure your family has an allowance policy that is communicated and understood. Then, you should apply the rules or policy “consistently” and revise them if necessary.

P.S. Full disclosure here: I did not grow up with an allowance, nor did my husband. I think we both are responsible and have a good relationship with money. Allowance is NOT a requirement to learn money lessons or habits.