Allowance Magic by David McCurrach, proposes a unique children’s allowance system. His core thoughts and principles border on perfect, presenting a sound case for providing allowance for kids. (My only issue with the plan is – it’s free money.)
The goal is to teach “child money management” before children leave home. He wants children to make mistakes in the presence of their parents and he proposes a “no cost” or “wash” children’s allowance system. Under his plan, parents provide an allowance to their children with the condition that their children will now pay for some of their own expenses (expenses the parents would have normally paid for anyway).
If you spent $120 on birthday gifts last year, then this year, you would provide a $10 per month allowance to your child, and explain that he or she must now purchase all birthday gifts for upcoming parties. The allowance is thus, a “wash” transaction. You spent $120 last year, and you will still spend $120 this year. The difference is by giving the money directly to your child, your child now has the power to decide how to spend it (and the opportunity to learn from any mistakes).
If you’re like me and don’t believe in children’s allowance, you can still implement this concept. You just do it on a smaller scale. When your children receive monetary gifts from family or friends, start having them pay for their own expenses.
Starting Age for Kids Allowance
To make this children’s allowance system work, you will have to convince your child that they should pay for a percentage of their own expenses.
For this reason, it is much easier to start at a young age. Five year old children usually get excited to spend their own $2 to buy a birthday card. Teenagers are not too excited when you ask them to begin paying for their own movies. However, if you have taught your five-year old, when your five-year old becomes a teenager, the transition can be seamless.
My policy is, “Everyone in my house who earns an income or has access to money (gift money), must help contribute toward their own expenses.” Often when my children ask for money and I suggest they spend their own. And often, my kids tell me, “But I don’t want to spend my money.”
“Well if it’s not worthy of your money, I don’t want to waste mine on it either.”
It’s amazing how children think twice when it is their money being spent! The value of money multiplies when it comes from your child’s pocket.
The value is even higher when a child has earned that money.
Should Kids Get Allowance or Should You be Hiring Your Children?
If you are giving your children an allowance, then it’s time to learn about hiring your children either in the family business or as household employees. Both strategies will allow you to implement the kids allowance concept, while opening up new possibilities of investing in a Roth IRA for a minor and excluding funds from the federal student aid process at college time.
Recall, the best children’s allowance concept:
Give Kids Allowance -> Kids Buy Items Parents Would Have Paid For Anyway
Kids learn money management, but they are also taught that money comes for free.
Consider an alternative choice:
Hire Your Kids -> Kids Buy Items Parents Would Have Paid For Anyway
Kids learn money management, and that they must work for pay. and opportunities open up for a Roth IRA.
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