I just finished reading Joline Godfrey's book, Raising Financially Fit Kids, and am now convinced that an allowance is none of the things listed above, but should be a tool to teach children how to manage money and foster financially independent adults. In fact, I was so impressed with Godfrey's thoughts on this topic (and others), that I now feel the book is a must-read for all parents.
In case you don't get a chance to read the book, here are some of the guidelines she recommends when using an allowance with your kids.
- Godfrey recommends explaining to your children that there are six things they should do with their money: Count it, earn it, save it, share it, grow it and spend it.
- To help them learn these six principles, she suggests setting a formula for how allowances will be allocated. Her take is that a third of the money should go toward savings, another third for personal spending, and the final third for philanthropy. I personally love that she believes giving to charity is something we should start teaching our children as young as age five.
- While this might sound a bit harsh to some parents, Godfrey advocates that all of the money a child receives, even birthday cash from grandma, should be subject to the same formula you set for allowances.
- Godfrey argues an allowance is not meant to reward children for chores they should be doing. So don't let your daughter swindle you into giving her a raise if she agrees to clean up her toys. But if she wants to do additional work around the house that you don't consider to be her responsibility, then feel free to pay her for her time.
- Finally, many parents want to know how much to give their kids. As a general rule, Godfrey recommends starting small and increasing the figure only as your child learns to manage the money. So avoid the temptation to give your kids more money just because they've celebrated a birthday.
And as my daughter gets a bit older -- Godfrey recommends starting an allowance at age five -- I'll be following this advice myself.
Do you agree with Godfrey's approach to allowances? Please share your views and how you manage your children's allowances.
Piggy Savings Bank image by alancleaver 2000, CC 2.0