Should A Summer Job Signal The End Of Allowance?

I recently received the following thoughtful question from a FamZoo parent (slightly edited to ensure anonymity):

Hey Bill,

I wanted to follow up on some discussion I saw recently on FamZoo about navigating allowances as your kids get older. My teen just turned 15 and is about to start a first job beyond some regular tutoring done over the years.

I want to come up with an approach that doesn’t make it feel like my teen is being penalized by losing allowance because my teen is showing initiative to get a summer job. My teen currently gets $10 a week that is split across spend, share (charitable donation), and save categories each week.

Do you think the Family 401(k) match is sufficient to offset losing the spending money we had been providing? Any other ideas on how best to support my teen’s growing financial knowledge and independence in a way that feels additive and not like a penalty for earning additional income? Open to ideas or suggestions. (As an aside, we’ve always been of the mindset that doing chores is expected as a member of the household and allowance is a separate thing that teaches the kids financial literacy. You’re not getting paid to do chores as you don’t have the option to not do chores and forgo your allowance. We’ve also implemented an annual clothing budget that the kids control quite effectively.)

Thanks for indulging my running thoughts. Keep up the excellent work!

First off: the “right call” on things like allowance is completely dependent on each individual family’s circumstances and money values.

With that caveat in mind, I’ll share my personal thoughts on the matter which are undoubtedly a product of my own family’s unique circumstances...

I think it’s very hard for most young teens to place a current value on future Roth IRA earnings which they, ideally, will not leverage until they are in their 60s. To a young teen, that seems like an almost infinite time horizon!

As the teens get older, leave the nest, and find full time jobs, it gradually dawns on them just how valuable the Family 401(k) process has been. They’ll thank you profusely someday!

So, for a young teen, I’d be inclined to keep the modest allowance in place despite the job income and the Family 401(k) match — as long as that’s affordable for your family. I’d characterize the allowance (and the Roth IRA match) as a bit of a bonus for being an industrious teen with a job. I’d explain my thinking to my teen and perhaps even change the name of the allowance to reflect its new spirit — like “Weekly Work Bonus” or some such.

I’d also point out that any arrangement is subject to change whenever warranted.

I’d reconsider the “bonus” approach if I thought my teen was unappreciative of the arrangement, or if I noticed negative money behaviors or attitudes beginning to emerge. Fortunately, you can always tweak things along the way as circumstances evolve.

I hope at least some portion of that perspective is useful for your family’s situation.

P.S. While reviewing this article with my colleague, Chris, he offered the following: “Perhaps encourage (but not force) the teen to split the paycheck between spend, share, save too.” I think that’s an excellent suggestion. The save component could also serve as the source of funds for the teen’s portion of the Roth IRA contribution.