Hellobee

I bought Charlie this bank when he was 5 years old to start giving him an allowance and teaching him about saving, spending and donating. That got put on hold when we moved to the Philippines because there wasn’t very much he could buy here and we were busy settling in. Recently he was out with some friends who used their allowance to buy themselves a drink, and Charlie wished he could do the same. He’s definitely old enough to understand the concept of money; we’ve given him a dollar here and there for chores and he loves going to the store to figure out what he can afford to buy. He’s also quite generous with his small amount of money, often opting to buy something for Olive as well. He’s now 7 and Olive is 5 and I think it’s a great time to introduce an allowance since Olive’s math skills are good enough for her to manage her own money.

Growing up in an immigrant family, the concept of an allowance was pretty foreign to me, but most American parents give their kids allowances. So I did a lot of reading online and a lot of similar approaches to allowances kept coming up:

1) Don’t tie allowance to chores. Although some parents do tie allowance to chores, most seemed to think that children shouldn’t be paid to do chores; chores are contributions to the family that everyone has to do. However going above and beyond normal chores can be paid extra.

I liked this approach because it’s important that the kids learn responsibilities from a young age, and they shouldn’t be expected to be paid for contributions to the family that everyone is required to make. We have a chore chart that looks like this; the kids move a laundry clip with a chore listed on it from the “to-do” section to the “done” section when they finish each chore. It really encourages the kids to complete their chores every day. Sometimes they have their off days (especially Olive) when they don’t do a great job with their chores, but we still don’t tie chores to their allowance.

2) Set a standard rate. 50¢ or $1 per week for each year of a child’s age were common amounts, which would allow children to naturally get a raise on each birthday and eliminate sibling fights. The specific amount will vary according to families and regions, but keep in mind that one of the main goals of an allowance is to teach children how to manage money. They will learn how to spend, save, wait, budget and gain financial literacy skills that can serve them their entire lives.

$1 per year of life comes out to $7/week for Charlie and $5/week for Olive, which I think is too much for them given that we live in a remote area and things cost less here. 60 pesos a week (~$1.22) for Charlie and 40 pesos a week (~81 cents) for Olive seemed like a good amount for our family, and it’s convenient (20 peso bills), so that’s what they receive each Saturday. We wanted to give them enough to be able to buy a treat each week, but not too much that they were buying little toys that cluttered the house and were quickly abandoned.

3) You can designate portions of the allowance to be saved and to be donated to charity.

Some parents have rules tied to allowance allocation, such as allowing kids to spend 1/3 of their allowance but requiring them to save 1/3 of it and donate 1/3 of it. This is the area I gave the most thought. Of course, I want my kids to save and to donate. But I thought that they would naturally learn how to save if they wanted something and didn’t have enough money for it. For instance the kids currently want something that costs 180 pesos, so they’ve calculated that it will take them 3 weeks to pool their money together and save up for it. I didn’t have to mention saving up to them — they came up with the plan themselves.

I decided to earmark 20 pesos for donating from their allowances each week, and they can spend (or save) the rest. I really wanted them to learn about the importance of giving back, so we spent time talking about the different types of charities that are out there, looking at various websites, and deciding on a cause. It was a great springboard for discussion and both kids decided to donate to animal charities.

4) You can set some rules.

We don’t allow the kids to drink soda, and I didn’t want them to spend their allowance on candy. Other than that they are free to spend their allowance on what they desire, which is usually ice cream or a small toy they save up for.

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I’m sure allowances will evolve as the kids get older. I’ve always imagined requiring the kids to do book reports when they want something. I like the idea of giving them a budget for specific things like back to school clothing and allowing them to figure out how best to use it. I’d also like to encourage them to save towards something big by perhaps providing them with interest or some form of matching funds. And we’ll definitely be opening a savings account for them once we’re back in the US!

Did you get an allowance growing up? Do you plan to give one to your child?