We are still stumbling through this thing called parenthood and I wanted to reflect briefly on the topic of money. I find myself reflecting often on allowance, money, investing, delaying gratification, and entrepreneurship. Some of the most important life lessons I learned from my parents covered these topics and I’m keen on passing on similar traits to my boys. As a kid I use to play a stock market game on our Apple IIe and I’m still looking for something comparable for the kids on the iPad.
Someone recently brought ThreeJars to my attention and it led me to explore other online allowance tracking options. You can read reviews of some of the options here: ThreeJars, FamZoo, Moneytrail, Zefty, and FamilyMint. I also came across AllowanceManager and Jandeo.
Here are a few of my thoughts/tenets:
- Manually Pay Allowance: One of the key features of most of the online allowance services is automatic allowance deposit. Designed for today’s busy parents who might forget to pay allowance, I feel like this aspect outsources a key parenting opportunity. I use allowance as a chance to sit down with each child. On the first Sunday of each month I hold a “meeting” with each child in my office. In addition to paying allowance we talk about how things are going, things they should work on, school, helping mom, etc. I’m hoping this helps keep the communication channels opens and creates an environment where they feel like they can come into my office and discuss things they are dealing with. I want them to feel they can ask for impromptu meetings with me when they want to chat.
- Separate Allowance from Family Chores: We try to separate allowance from family chores. There are certain things kids have to do as part of being family members. Accomplishing these chores are expected. We haven’t tied anything to allowance, but I also want them to understand that they don’t get a free “pay check.” Still finding the balance here.
- Pay Cash: In today’s digital world I get that these services focus on digital direct-deposit, but I think kids relate to cash. I also want them to recognize the reality of what they are receiving. I’d prefer to give them cash and have them “re-deposit” the cash immediately in The Bank of Dad. This way they see it and have to make a proactive decision to save, etc.
- Pay Interest: In trying to develop long-term saving habits and getting the kids to learn to defer gratification I think its important to pay interest. Right now I pay 20% interest at the end of the quarter on anything they’ve saved but am also considering paying 5% interest on a monthly basis. Right now I pay cash and so at the end of each quarter we add up the money they have and I pay interest on this. As you can imagine, this is logistically painful since they have to add up their money each quarter. Moving forward I think I’ll use an online allowance tracker and pay interest off of that. So anything in cash is considered spending. I’m still trying to figure out how to incorporate investing in addition to traditional savings.
- Preestablished Allocation: Some of the services allow parents to preestablish allocations between savings, spending, and charity. I’m torn on this topic. I think they should make those allocations themselves as part of being responsible money managers, but as part of teaching them I also want them to allocate some percentage of their money to charity and savings. I also want them to learn that long-term wealth is developed by automating the saving/investing decision by putting some money away each month automatically.
- Setting Larger Savings Goals: Our kids are still young so we haven’t gotten much into setting larger savings goals, but I like that these services allow them to set larger savings goals.
- How Much to Pay: We’ve been paying a dollar a month for their age. I’m wondering if we should pay more and let them pay for more things when we are out. I don’t want to make them buy everything when we are out so finding this balance can be tricky and we haven’t yet mastered a good balance. I do want to teach them trade-offs. Perhaps I’ll pay for anything that I would buy myself (a drink and a hot dog at the baseball game, an occassion soda when we are out) and they have to pay for anything else (souvenirs, ice cream, additional sodas, etc).
- Help Wanted Ads: While researching these online allowance systems I came across some other interesting ideas. Suzanne Parker at GrowingRichKids.com writes about having a help wanted ad posted on the refrigerator as a way kids can earn extra money.
- Paying for Grades: We aren’t paying for grades yet and I’ve seen suggestions that parents shouldn’t pay for grades. I was paid for good grades and think it is fine to pay for good grades but I also think the pay should be consist with real world dynamics. In other words, I don’t think every A is of equal value. An A in math or science is worth more than an A in art, drama, or PE. Some suggest this may dissuade kids from pursuing their love or where they might have talent. I would argue it simply helps them learn how the world will likely value those skills.
