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Allowances: What Are They For? Are They Good or Bad for Kids? Family Finance Picks #58

This week’s picks are all about allowances. What are they for? Do allowances make your kids lazy, dependent, and entitled? Or, do they teach your kids good money habits?

Read on...

What’s an Allowance For?

Is an Allowance a Handout or a Budget?What purchases should an allowance be used for? That’s the question KJ tackles this week with her readers on this Motherload blog post.

My 2 cents:

I like KJ’s characterization: an allowance is a “very tiny piece of the family budget to manage.” I also think that tiny piece (i.e., the categories) should expand over time as the child matures. Modest pocket money for small discretionary wants (toys, munchies, etc) for youngsters is a fine start. Kids learn to delay gratification, make trade-off decisions, and generally appreciate that money isn’t a magical infinite resource. Clothing, entertainment, sporting expenses are all great categories to add as kids grow into the tween/teen phases — not to mention long term savings and philanthropy. Also, kids can start contributing their own income to those budget categories as they get old enough to earn outside-the-family money from odd jobs, summer jobs, mini-businesses, etc. Whether the allowance income that comes from you the parent is tied to chores or not — well, that’s a whole ’nother raging debate!

If more parents thought “budget” or “constraint” when they heard “allowance,” it would be less of a dirty word!

Related FamZoo Activity: Teach your child how to make and manage a budget.
Discuss on FaceBook.

If You Love Your Children, Don’t Give Them Allowances

a letter from Lawrence Chrietzberg on TCPalm

Does Allowance Make Your Kids Lazy, Dependent, and Entitled?Do you love your children? Then don’t give them an allowance! Or so argues Lawrence Chrietzberg in this letter to a Florida newspaper.

While I think some of the points are fair, I think there are quite a few flaws and leaps in Lawrence’s letter. How about you? I think age is an important consideration. I also don’t think allowance has to mean entitlement. If used properly, it can be an excellent tool for teaching personal finance basics. For example, how about taking one of those necessities that Lawrence describes his father taking care of (like clothing), making a budget for it, setting an allowance to that budget, and handing over the spending decisions to the child? That wouldn’t be a hand-out teaching “laziness” and “dependency” — more like a personal finance education teaching constraints and discipline.

Related FamZoo Activity: Teach your teen how to make a clothing budget.
Discuss on FaceBook.

Giving Your Kids an Allowance Can Save You Money in the Long Run

Kids Can Learn To Be Savvy SpendersAllowance? Earned through chores? Which chores? How much? How often? Interesting questions, but they may not be terribly crucial. The most important thing is that kids have some form of modest income from somewhere — some money to call their own with which they can make regular spending decisions (and mistakes!). Kids will learn to spend more wisely if we let them practice spending their own limited supply, not yours which in your kid’s eyes is boundless.

I always think real family stories illustrate this point most effectively. Katherine’s personal stories at the end of this article are a perfect example. Read them here.

Related FamZoo Activity: Teach your child to save up for a purchase.
Discuss on FaceBook.

Still can’t get enough of the allowance debate? Join this lively allowance discussion on BabyCenter — 93 comments so far!

We’re constantly scouring the Internet looking for articles related to family finances and teaching kids good personal finance habits. You can visit our ever growing list of family finance bookmarks here. We’re up to 2,900 now!


Make Your Own Mom Dollars and Dad Dollars

A Dad Dollar "Bill"Who doesn’t want to print their own money?

Lots of parents like to use point systems instead of money to reward younger kids for certain tasks or achievements. Those points can typically be redeemed for some fun activity with Mom or Dad — like an outing to the movies — or extra computer or gaming time.

If you like that approach, you might like this fun site I stumbled upon while reading the comments in an article about chores. It helps you create fake money with your picture on it — instant Mom/Dad dollars! Hand out Mom/Dad dollars for completed tasks or achievements or just as a random act of parental kindness. You might want to create a rewards chart with your kids indicating how they can be redeemed.

Make Mom/Dad Dollars

Here’s how you do it:

  1. Visit http://www.festisite.com/money.
  2. Make sure “Money” is selected in the upper left.
  3. Select your desired currency in the upper right.
  4. Click the “Photo” button in the lower left to upload your favorite mug shot.
  5. Click the “Download” button in the lower left to download an image of your custom money that you can then print from your computer.

Tween Tip: if your kid is getting to the far edge of that precious Mom-And-Dad-Are-Still-Cool stage, try Justin Bieber’s photo instead of your own.


Pricey Hot Toys, Crushed iPhones, Bodnar vs Ramsey: Family Finance Picks #57

This week, the family finance picks include hot holiday toy prices (already?!), damaged iPhones, and one of the classic kids & money debates: should parents tie allowance to chores?

Ouch! Majority of ‘Hot’ Holiday Toys Cost $50 or More

Time to Teach Your Kids to Save?Which is worse?

  1. Toys R Us released its Holiday Hot Toy list over a month before Halloween.
  2. The average price of a toy on the hot list rose 34% from $62 last year to $83 this year.

Both seem crazy and out of step with our current economic realities.

To see whether Walmart’s top toy list promotes similar escalation in consumption, read Brad’s story here.

Related FamZoo Activity: Teach your child to save.
Discuss on FaceBook.

Many iPhone 5 Buyers Own a Damaged iPhone 4S

Does your teen share responsibility for a damaged phone? Did you know that a whopping 30% of iPhone users damaged their devices within the past 12 months? Yow!

So apparently my teen, who cracked his iPhone screen just last week, is in good company. With a replacement iPhone costing $600 without a contract, this might be a good time to teach your smart-phone toting kids about the concept of insurance. We give our teens the option of paying for insurance each month or bearing the full replacement cost of their phones.

Does Your Teen Share Cell Phone Replacement Cost?

Read Quentin’s iPhone story here.

P.S. Before you rush out and replace your old iPhone, be forewarned that the maps in the new one may leave you feeling lost.

Related FamZoo Activity: Share costs with your child for recurring fees using automatic debits.
Discuss on FaceBook.

Don’t Tie Allowance to Chores

Bodnar VS RamseyPersonal finance editor Janet Bodnar writes Kiplinger’s Money Smart Kids column. As you might surmise from the article title, she has very definitive opinions on allowance and chores. She admonishes parents: don’t “use money to motivate kids to help out around the house.” Somebody should arrange a debate between her and Dave Ramsey who champions the opposing “commission chart” approach.

Even if you’re a fan of linking allowance and chores (we’re cool with either approach at FamZoo), this article is worth reading. It raises some good discussion about matching your system to age, distinguishing between expected chores vs paid jobs, and delegating spending responsibility to your kids. She calls this last one “financial chores.” I love the idea of delegating spending responsibility to your kids as they mature, but I think her label for it is awkward. Spending responsibility doesn’t feel like a “chore.” In fact, tweens and teens crave independence, and I suspect they’ll view the opportunity to manage their spending in an area like clothing as a welcome new privilege, not a chore.

Anyway, I like where the article ends up despite the link-bait title. Read it here.

Related FamZoo Activity: Teach your kids how to track expenses.
Discuss on FaceBook.

We’re constantly scouring the Internet looking for articles related to family finances and teaching kids good personal finance habits. You can visit our ever growing list of family finance bookmarks here. We’re up to 2,883 now!


How to Encourage Your Kids to Save and Give with Matching Contributions

Automatic MatchingIn the adult world, it’s common for an employer to match a percentage of an employee’s contributions to a retirement account or a non-profit organization. Employers know that a matching policy is a powerful stimulus for driving good saving and charitable giving habits by employees.

Parents will find that the same technique works well with kids. That’s why we’ve made matching super simple for parents to administer in FamZoo by adding an automatic matching capability to our virtual family bank accounts.

Here’s how it works for a typical scenario: Suppose you’d like to encourage your daughter’s charitable giving by kicking in a 50% matching contribution for every deposit she makes to her charitable account.

Edit the Account Settings

To set up the 50% matching, locate your daughter’s charitable account on the Accounts page of the Bank tab, hover over the account with your mouse, and click on the pencil icon to edit its settings. (If you don’t already have a charitable account set up for your daughter, you can click on the Create Account action link to create one.)

Edit the Account Settings

Fill in the Matching Credit Details

Check the box to turn on automatic delivery of matching credits. Fill in a matching percentage — 50 in this case — and a description to be included as part of each matching credit transaction. We’ll use “Charitable match from Dad.”

Fill In The Matching Credit Details

The Next Time a Deposit Hits the Account...

Now any deposit into your daughter’s charitable giving account — whether it’s an automatic one from an allowance or chore, or a manual one from an odd job or gift — will be followed by a matching deposit of the specified percentage. To generate a sample matching transaction, let’s say your daughter gets paid $20 for some babysitting next door and you choose to split that between her accounts using the Split Credit form with 10% of the $20 (or $2) going to her charitable giving account.

The Next Time a Deposit Hits the Account...

A Matching Credit Will Automatically Appear

After completing the split credit, you can visit the Transactions page to confirm that the appropriate matching credit transaction has been automatically added to your daughter’s charitable account. The matching transaction description includes the match description we supplied earlier (“Charitable match from Dad”), the matching percentage (50%), and the amount being matched ($2). The Memo field identifies the original deposit that caused the match, which should appear immediately below.

A Matching Credit Will Automatically Appear

A subtle note about deleting matching transactions: if you delete the original transaction, the matching transaction will automatically be deleted as well. The converse is not true. If you delete the matching transaction, the original transaction will remain untouched. That makes it easy to selectively undo an individual matching contribution if desired.

Happy matching!

As always, if you have any questions or feedback, don’t hesitate to contact us.


Grokking Credit Cards at 10, Teen Clothing Allowances, Initiative Charts: Family Finance Picks #56

I Get How Credit Cards WorkThis week’s round-up runs the gamut from credit cards to clothing budgets to chores. But there is a common thread: not underestimating our kids. Kids can understand subtle concepts. They can take ownership over their spending and accept consequences without whining. They can take initiative to help the family.

Here are the family finance picks for the week:

Beware College Students Carrying Credit Cards

The Wall Street Journal reports on research by Professor Cliff Robb at Kansas State University that finds: “the least knowledgeable students [in the area of personal finance] are about twice as likely as students with midlevel knowledge to carry a maxed-out credit card...and they are more likely to take cash advances and be delinquent in making credit-card payments.”

Shocking! Insert sarcastic smiley face here...

Bad Combination!

My favorite quote in the article is of course: “Many financial professionals say the best way to teach students about financial responsibility is to give them hands-on experience before they head off to college.” True dat!

Related FamZoo Activity: Give kids hands-on personal finance experience early with a virtual family bank.

Speaking of early and credit cards, parents need to realize that kids are a lot more savvy than we tend to think.

Out of the blue, my 10 year old asked me how a credit card works while walking to school yesterday. We talked about how it differs from paying with cash, and how it’s basically a loan with really, really nasty penalties for paying late. We talked about merchant fees (“Why does the Noodle House only accept cash?”) and rewards programs (“Is that where you get all your free coffees?”). We talked about the difference between a credit card and a debit card. We talked about how people get into really bad debt problems when they spend irresponsibly with credit cards. As much as I like to think my kid is a genius, he’s a pretty typical 10 year old. He totally got all the concepts and had some really interesting questions (Q: “Couldn’t you actually make money off a rewards program?” A: “Yes, if you’re disciplined!”).

We’re talking about a 10 minute walk here. Wouldn’t it be cool if every kid knew the pros and cons of credit cards starting at age 10?

Try the discussion. They can handle it.

Living with Children: Clothing allowance for teen girls

Prom Can Take a Big Bite Out of That Clothing Budget!Do you have a teen who is really into clothing? There’s a good discussion here in BakersfieldMom about establishing a clothing allowance for teen girls, whether it should be monthly or annual, how much is reasonable, etc.

A monthly budget/allowance can work just fine, but I’ve had good experiences with annual. It’s an eye opener for the child (and some parents!) to construct the annual budget and see just how large that number gets with seemingly reasonable choices. It’s a great way to learn how to manage a pretty large sum over a long period of time — which requires some discipline and thinking ahead.

The key is that your child has to live with the consequences of blowing a chunk of the budget early. Despite what the family psychologist councils in the article, I found there was really no whining in this case, because my daughter participated in making the original budget and therefore felt and took ownership.

Related FamZoo Activity: Create a clothing budget with your teen.

Teaching Our Children To Take Initiative

Initiative ChartHere’s an interesting little twist on the chore chart: an “Initiative Chart.” Instead of a mandated enumeration of chores with associated rewards, it’s a set of suggestions for taking initiative and helping the family during segments of the day.

I love the fresh, thoughtful philosophy. Check it out here.

Related FamZoo Activity: Create an online chore chart. Leave off the amounts to make it an initiative chart!

We’re constantly scouring the Internet looking for articles related to family finances and teaching kids good personal finance habits. You can visit our ever growing list of family finance bookmarks here. We’re up to 2,857 now!


Youth Financial Education News and Analysis: Looking for the Latest, Greatest Curated Content?

Curated Youth Financial Literacy and Education ContentAre you interested in youth financial literacy and education? Do you want to keep abreast of the latest news, techniques, trends, and analysis when it comes to teaching kids good personal finance habits?

Me too.

In fact...

Tagged Financial Education Content Library

I spend hours each day scanning articles, blog posts, social media streams, videos, and everything else on the Internet in search of the most interesting youth financial education content. Ditching the gratuitous link bait and just plain shallow, hackneyed pieces, I systematically cull out the high quality items and catalog them on the bookmarking site Delicious.com.

Over the last two and a half years, I have saved and tagged thousands of links. 2,845 as of now, to be precise.

Want to see quality articles on how the Girl Scouts are enhancing their program with financial merit badges? Just click on the girl-scouts tag.

Is paying kids for grades effective, ineffective, or just plain wrong? Click on the grades tag to get quality opinion, research, and analysis.

Wondering how much parents are doling out for their kids’ teeth? Click on the tooth-fairy tag.

Poke around a bit — there are almost a hundred different tags.

If you just want to cut to my favorites, check out the family finance picks posted on the blog each week.

Real-time Financial Education Link Curation

But what if you’d like to hear about new content as soon as I discover it? Maybe you’d even like to see my (I’d like to think thoughtful) commentary along with each link. Want to lob in your own two cents, share with your audience, or see what others have to say?

Then you’ll want to join our Facebook page where I post and comment on the curated youth financial education links in real-time throughout the day.

Here’s a preview of the latest:

Can’t see the Facebook stream above? Click here

And if you stumble upon a quality youth financial literacy and education link that I’ve missed, I’d be very grateful if you stop by and post it on our wall.


Paying For Grades, Paying for Teeth, Setting Limits: Family Finance Picks #55

First, it’s paying for grades. Then it’s paying for teeth. Finally, we set some limits! Here are my favorite family finance picks from last week:

As School Starts, Parents Pay Up For Grades

Pay For Grades vs Pay For StudyI chatted with Chris Taylor last week about the classic parenting debate: should you pay kids for grades? It works for some families — see Ganesh’s story in the article. We tried it for a little while with two of our sons and saw no significant impact, so we dropped it. A study out of Harvard I wrote about last year found that paying for good study behaviors along the way is more effective and lasting than paying for the final outcome. That was the basis for my suggestion near the bottom of Chris’ article:

The bad thing about paying for outcome is that if the semester is going down the tubes, then there’s no motivation anymore. But if you’re paying for a habit like reading regularly or doing homework, then it’s never too late.

Read the full article here.

Visa’s Tooth Fairy App Calculates the Going Rate for Baby Teeth

Tooth Fairy IntelligenceAt first blush, you might think that parents with higher levels of income and education would pay their kids heftier tooth fairy rewards. You’d be very wrong according to VISA survey data just published via an online application and a mobile app.

Alex Madrigal from the The Atlantic writes: “I played a bit with the app, holding age, gender, and location steady while playing with the household income and education level variables. The smaller the amount I put in for household income, the greater the size of the average tooth fairy’s gift. In fact, I was only able to get calculator to output $5 by setting my household income to $20k per year and selecting that my highest level of educational attainment was high school. Grad school degree holders making more than $150,000 per year gave their kids an average of $1 per tooth.”

See the article here.

New Rules For Your Kid’s Allowance

It's OK to Set Limits!Beth Kobliner makes some excellent points in this allowance article like: you’ll want to base the allowance amount on what your child is expected to purchase (budget-based allowance vs. age-based), and it’s fine to set limits with “their” money. See Beth’s article here.

We’re constantly scouring the Internet looking for articles related to family finances and teaching kids good personal finance habits. You can visit our ever growing list of family finance bookmarks here. We’re up to 2,832 now!


The New York Times Tackles Online Allowance

New York Times: Managing a Child's Allowance, the Online VersionRon Lieber weighs the pros and cons of online allowance management in today’s New York Times piece: Managing a Child’s Allowance, the Online Version. The article focuses on a competitor, but FamZoo receives some nice mentions at both the beginning (with a link to our About page) and the end (with a link to a post about our Partner Edition for credit unions, banks, and other financial organizations).

Here are a few thoughts on the points Ron raises in the article.

First, Ron worries that online sites like ours make money less tangible for kids. I understand that sentiment, but one of our key goals is to educate kids that electronic forms of money are in fact very real — just like physical forms. The sooner kids get that — and they catch on fast — the better. Ideally, they’ll achieve this epiphany before they get a hold of credit cards or purchase boatloads of virtual goods within some nefarious online game.

Second, Ron laments encouraging yet more screen time for kids. I hear that, but realistically any screen time spent on FamZoo periodically checking a balance or progress on a savings goal is negligible compared to the time they’re likely spending on Facebook, Battlefield 3, Halo, World of Warcraft, Minecraft, you name it.

Third, Ron worries that the email based purchase approval process in Tykoon might replace real conversations. That’s one reason we didn’t implement such an approval process in FamZoo. Spurring meaningful conversations between parent and child about life skills is a key objective. The other — and frankly bigger — reason we didn’t implement an email workflow process for transactions is that it’s just plain cumbersome. We constantly remind ourselves while designing FamZoo that parents are insanely busy. We want to make it super simple and painless for parents to be consistent, effective money mentors.

Fourth, Ron notes that it can be annoying when the child’s desired purchase or charitable giving target is not in the canned Tykoon store. This gets into a bigger issue of business models and conflicting priorities: if a site’s mission is to help kids learn good spending habits, but the site makes money by getting a cut of every purchase made from the site, a conflict naturally arises between the mission (delayed gratification) and the revenue (which is proportional to purchase volume). That’s why our business model is a flat, transparent subscription fee. When your child learns and exercises spending restraint, FamZoo’s revenue doesn’t tank.

Lastly, the article includes some discussion about why a more game-like approach isn’t taken. While I’m a fan of infusing game-like incentives into task based systems, I think anyone who thinks they’re going to make a youth financial education game that rivals today’s popular games (like World of Warcraft or even Angry Birds) is going to find that’s a very, very tall order — if not impossible. I think gamification can be applied to personal finance in clever ways, but personal finance just doesn’t really cut it as a game in and of itself. Why? Check out this video

Shh... FamZoo's Secret Finovate Teaser Trailer from Bill Dwight @FamZoo on Vimeo.

Your thoughts? Ron invites families to weigh in on the topic in his related blog post here.


Financial Literacy Merit Badges, Rarely Too Early Never Too Late, Allowance Survey: Family Finance Picks #54

What was hot in the family finance arena this week? Financial literacy merit badges for girl scouts, a reminder that it’s rarely too early and it’s never too late to start teaching your kids good money habits, lots of headline grabbing stats from the recent AICPA allowance survey, and a bonus video from Alisa.

Here are the top family finance picks for the week:

How Eating Girl Scout Cookies Helps Kids Learn About Money

Thin Mints: Now Featuring 100% of the RDA for Financial EducationDan is pounding thin mint cookies with zero guilt these days. Why? Because he’s supporting financial education for girls. Selling girl scout cookies has been transformed from simple fund raising to part of an overall financial literacy program involving 11 badges: money manager, philanthropist, savvy shopper, business owner, budgeting, comparison shopping, financing my dreams, buying power, on my own, and good credit. Read more about how gorging yourself on thin mints can help girl scouts achieve the “business owner” merit badge here.

A Pre-College Spending Frenzy

by “Preserved Sanity” on Get Rich Slowly

Teaching Your Kids Good Money Habits: It's Rarely Too Early, And It's Never Too Late!If I only had a dollar for every time I’ve heard “I wish I had started earlier on teaching my kids how to manage their money!” Read how a guest blogger on Get Rich Slowly waited till age 18 with one son, but is starting at 9 with the other. The upshot for me: when it comes to teaching your kids good money habits, it’s rarely too early and it’s never too late! Read more here.

Monkey See, Monkey Do? Just 1% of Kids Save Any Allowance Money

Monkey See, Monkey Spend?“Just 1% of parents say their kids save any portion of their allowance.” Really?! This and more fun stats are covered in this Time article as a recent allowance survey gets more media play.

The American Institute of CPAs (AICPA) sponsored a Harris Poll of U.S. parents last month. The questions focused on allowance behaviors, and the survey is getting quite a bit of play in the media right now. Here are just a few of the headline grabbing stats bouncing around the web:

  • 61% of parents give their kids an allowance.
  • 54% of parents who do give allowances start before age 8.
  • Average weekly allowance amounts by age range are: 4-12 years - $5.90, 13-17 years - $14.59, 18-25(!) years - $34.88.
  • 89% of parents make their child do at least 1 hour of work a week in exchange for allowance.
  • 48% of parents pay at least $1 to their children who get an "A" in school.
  • The average cash reward for an "A" grade is $16.60.
  • Parents who are college graduates are far less likely to pay for grades than those who aren't (17% vs 46%)
  • At least 97% of the kids spend 100% of their allowance - 1% save a portion, 2% unknown.

Hmmm — that last one is pretty darn disturbing. By comparison, 69% of allowances set up by FamZoo parents include an automatic allocation into a virtual savings account.

On the brighter side, 23% of the surveyed parents cited charitable donations as part of their children's spending habits. How does that compare to FamZoo habits? 60% of the allowances in FamZoo automatically distribute funds to a virtual charitable giving account. Bravo!

Those comparisons seem to support our premise that an automated system can help drive better saving and giving habits.

Bonus pick: Alisa Weinstein of Earn My Keep says:

One of the most important rules when teaching kids about money is: be consistent.

One of the biggest challenges when teaching kids about money is: to be consistent.

Alisa offers three tips for staying consistent when teaching kids about money. Check out tip #3. Oh, and by the way, there’s an app for that!

We’re constantly scouring the Internet looking for articles related to family finances and teaching kids good personal finance habits. You can visit our ever growing list of family finance bookmarks here. We’re up to 2818 now!