Tuesday, March 3, 2009

Kids & Money

(Originally posted at Rational Jenn)

Money is a Good Thing (my recent obsession with Twitter makes it hard not to precede "Good Thing" with a #).

Oh yes, money is dead useful if you need to buy something or do something fun or eat, and we seem to go through an awful lot of it around here.

Beginning a couple of years ago, Ryan (now nearly 7) developed a keen interest in money of all kinds , and quickly grasped two key principles concerning money: More Money = Better; and My Money = MINE. Morgan is not quite there yet, but she is beginning to discover that we hand over money to cashiers at stores and we then get to bring items home. So she'll get there.

So Brendan and I began to discuss ways in which to help Ryan get the money he yearned for while making sure that we help him understand just where money comes from. Easy discussion, right? Ha! This money issue turned out to be the only major disagreement Brendan and I have ever had about parenting. (Tip: try to avoid major philosophical disagreements while one of the parties is pregnant or newly post-partum. I know it sometimes can't be avoided, but try.)

There seem to be two main schools of thought about how to teach kids about money: the Allowance School and the Chores School. There are many different combinations of the two ideas. When we first started talking about Ryan and his desire for money, I was very pro-allowance and Brendan wanted Ryan to get his spending money solely through earning it. It became clear that we had different ideas about kids and money, partly because of our own childhood experiences. What we ended up doing is defining some of the goals and thoughts we had about money, our principles, and have developed a way for us to satisfy all of them. I think. :o)

Ryan's Goal

To have money of his own!

Brendan's and My Goals

To help our kids understand:

  • How wealth is created
  • That earning money is tied to hard work
  • Money management skills, including budgeting and planning
  • The value of saving

Brendan was, and to a certain degree remains, very much in the Chore camp. Any and all money ought to be directly earned by the child working to do something meaningful around the house.

I also like the idea of the kids earning money through chores. Because of course it reinforces the concept that wealth is earned, and the Trader Principle, too. So what was my problem? It was all in the execution.

We tried the Chore route for a while last summer and it was really darn hard for me to keep up with. Now I have no problem paying kids (or anyone!) to do extra jobs around the house (especially the Cruel and Unusual kind, such as tax preparation and yard work and window-washing), but coming up with daily tasks that a kid could get paid to do was a big pain for me. Which tasks? How much should I pay? How much did I pay last time? What if I'm short on cold hard cash at the moment the task is/needs to be completed? (I often don't have tons of cash lying around. Uh, in case you were wondering.)

Not only were there administrative issues which I didn't enjoy and took up more of my time than I wanted to contribute, Ryan seemed to be unable to grasp the distinction between jobs we would pay for and things everyone needs to help out with as part of living in a family (aka responsibilities). So he was beginning to say things to me like: "You owe me a dollar. I just took my plate to the sink!" or my very favorite: "How much will you pay me?" when asked to do things such as clean up a mess of his own making or brush his teeth. Charming.

So I brought up the idea of a regular allowance again. I had received an allowance as a child, but Brendan never did. I liked having money of my own and being able to count on adding a certain amount to my stash each week. I still had the option of earning extra money if I wanted to by doing extra work around the house. Getting a regular allowance helps a person learn all of those money management skills such as planning and budgeting and tracking expenses. It's easy to administer and eliminates the Pay-For-Existing revenue model that Ryan was using.

Brendan's primary objection to an allowance was that simply giving money over to the child without explicitly tying it to industrious effort will result in an adult who somehow thinks money and wealth do not need to be earned and created, or worse, that it somehow comes from the government. He doesn't want our kids to think that money somehow magically appears. And of course, I agree.

But how to address the idea that wealth is earned and not a handout?

We can do this in two ways. First, we own two businesses, and the older kids understand that "Dad works for his clients in exchange for money that we use to buy things." They do the happy dance with me when we receive a check from the company that manages our cabin rentals for us, and accompany me to deposit the check in the bank. We always talk about how people give us money in exchange for getting to stay at our cabin, and that we use that money to pay for electricity at the cabin and other things, too. I really think that Ryan at least has a solid grasp (for a kid) about how we get our money--through our thinking and efforts. I really don't see how the kids wouldn't connect our earning money with our efforts, unless we tried to hide it from them for some reason.

The second way is to continue to pay them for Cruel and Unusual Work, as referenced above. This is how my parents did it with us, and I think there is room for both schools of thought in our house, too. It's similar to earning a bonus at work for doing an extra project.

But Brendan was still a holdout on the allowance issue, despite my well-reasoned and airtight arguments attempts to demonstrate that a child receiving an allowance would not necessarily guarantee that he will end up on welfare.

Brendan views allowance as a "handout." So I suggested that we instead look at a weekly allowance as a way to turn over to Ryan a very small portion of the money we already spend on him. We spend money on him all the time: we share our food and share our home and electricity and cars: why not share our money, the means with which we acquire those things we share with them? Brendan was worried that they would somehow get used to having money handed to them; the fact of the matter is that kids are necessarily dependent on us. They can't go get jobs, at least not yet, and rely on us to take care of their needs. In giving Ryan some control over a bit of money, we can provide him with experience in handling financial matters, and as he grows, the money and responsibilities will grow, too.

So we decided to try the allowance plan, to the tune of $3 a week, and have been on the plan since about October. I win! We reached a mutually beneficial agreement, which we can revisit later if things aren't working out according to plan.

We have a few parameters around his allowance.

Ryan is in complete control of his money. He can spend it or save it however he wants. I think this is important because it's his property. That means he is responsible for his good and bad decisions. There is no savings requirement and certainly not a charitable donation requirement, as many websites about kids and money seem to suggest.

He can buy whatever he wants to with it: toys, candy, books, etc. (subject to general restrictions like movies we don't think are appropriate, for example). Ryan seems to enjoy saving up for specific things, but he also splurges, too (he's a sucker for vending machine rubber balls). If he wanted to give all of his money to a charity, we wouldn't stop him--we'd probably have a chat about it, just to see why he wanted to do it; but we wouldn't make him do it either.

He is in charge of keeping track of it. As Brendan is fond of saying, "What can you buy with Lost Money? Nothing." Since Ryan has been responsible for his own money, he is very careful to put his allowance in his wallet and treasure box.

But, as a condition of us turning over some of the money we spend on him, we have told him, and he has agreed, that Brendan and I will no longer buy him LEGO or souvenirs on vacation. As he gets older, he'll receive more money, but will also be expected to be responsible for other kinds of purchases. For example, at some point, I don't know exactly when, he'll get a clothing budget and make all of those decisions for himself. The reason we started with LEGO and souvenirs is that those are two general expense categories where Ryan always, always wants us to buy something for him, and until recently he has had very little concern with how much those kinds of items cost.

Extra money can always be earned by working on household projects for a mutually agreed upon price.
This includes all of those jobs I mentioned before, and I'm sure we'll think of others that fall into the category. Picking up one's toys and putting one's laundry in the laundry room is a responsibility, not a revenue opportunity.

His allowance is not tied to any punishment or reward.
This was a hard idea for Brendan and me to work through, but once we did we renewed our commitment to non-punitive discipline techniques (PD). The allowance is shared with him, provided for him--in the same way we provide a home. It is not a reward for good behavior. And just as we would not withhold food from our kids as punishment, or take away a toy they love, money should be no different. I would hate to remove money or other property because it would give them the wrong impression that property rights can be violated at the parent's discretion.

I think the solution Brendan and Ryan and I reached is a good one for our family. It reinforces our values: property rights, responsibility, independent decision-making, learning about money management. It gives him the opportunity to earn more money if he wants--he's planning to do a bunch of yard work as soon as the weather clears up. It lets Brendan and me off the hook for certain optional spending--LEGOs, which are really pricey!

And we are of course still continuing our family conversation about how Daddy (and sometimes Mommy) earns money, why he earns it, the hard work that goes into it, what happens to the money we get, where the money that we spend goes, etc. The kids have always been involved in our work; it's just how we do things. We take them to meetings concerning the cabin; Brendan takes them to work with him; they help mail out bills and invoices; they go to the bank. And one day Ryan will get a job and get a more personal perspective!

I'm certain that there are many different solutions to the money question. We haven't encountered some things yet, since our oldest is just getting into the money thing. One day I imagine that we'll open bank accounts and show them how to balance a checkbook and do a budget. Right now, the main concept that Ryan is having trouble with is the idea of "making change." But since he has just cottoned on to the subtraction idea recently, I think we'll make some good headway there pretty soon.

How do you handle money with your kids?


For some interesting pro-allowance essays, see Kids Money.
Clark Smart Parents, Clark Smart Kids, by Clark Howard.

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