Allowance 2.0: an Introduction
How, Not How Much: Allowance 2.0, in the Context of Wealth 3.0
Words, Not Numbers
In almost three decades the most frequently asked questions I get begin with, ‘How much?” How much should my child’s allowance be? How much should I leave my kids? How much should they be spending at camp? On vacation? How much should I spend on them? On their clothes allowance? How much is too much?
My work with hundreds of families makes it clear that “how much?” is the wrong question.
HOW is the question worth pursuing:
How do you hope kids will spend money?
How do you hope they will manage, steward, save, think about it, consider it?
How are you communicating your expectations?
What messages are you giving about the power of stewardship, the discipline of saving, the possibility of solving big, juicy problems, the function of money as a tool that offers more than easy consumption and can be a path to invention, change, impact?
One of my colleagues says, “Some problems can’t be solved with numbers; they must be solved with words.” When it comes to helping children be creative and responsible, mindful of privilege but not overwhelmed by it, open to possibility, but not foolhardy or wasteful, numbers are an inadequate tool; words are the sharper knife. Using words rather than numbers offers an opportunity for connection between child and adult that often gets short circuited by a premature numbers conversation.
The Twelve-Foot Analysis
In sit-downs—with both 10-year-olds and 25-year-olds—I pull out a VERY long piece of paper (at least 12 feet), available in rolls at your local office supply store, and sketch out a 12-month calendar. Using words—and the visual of a year of one’s life—rather than numbers, we fill in the months, layer by layer.
We spend hours building a map of how they spend money. We may start with holidays: How many costumes do you have to have at Halloween? What do you do on spring break? We may look at their pastimes: How often do you get a Lego™ kit or purchase a plane model to assemble? We look at their social lives: How many birthday parties or weddings do you plan to attend this year? How often do you eat out with friends, and where are you likely to eat? What kind of gear do you need for your sport or hobby or art? How often do you take a cab or use Uber? Do you train it to visit your grandmother, drive, or fly? Do you play tennis once a week in the summer, or are you a daily swimmer at a private club? Is a weekly pedicure essential, or are you a DIY kind of self-care person? Do you drive electric or gas? Are you living alone or with roommates?
There’s an endless number of questions that help us create a financial blueprint of how they live, how they want to live, and how they assume they can or must live. These are questions that help me get at the heart of who this child (or adult) is.
The questions are different for everyone at every stage of the developmental life cycle. The 16-year-old attending private school in NYC spends more on clothes than the 16-year-old at a laid-back private school out West. The college student who mentions he bought a quart of whiskey for himself and a pint of tequila for his girlfriend EVERY weekend because of the party culture in his fraternity, and the young woman who spends little on clothes or eating out but pays over $4000 a year in car insurance because she’s had one accident too many, tells me something about how much they spend and who they are, whether the money is coming directly out of their account or subsidized in some other way.
At the completion of one of these sessions, I report the monthly or annual ’number’ we’ve uncovered to the parent (if the child is under 18); not what it ’should be’, but what it actually is. That number may be $500 for a 12-year-old; $5000 for a 14-year-old or $15,000 for a 22-year-old. This report is often met with shock. Adding up the real cost of children’s lives is a revelation.
Now, to be clear, I’m not suggesting giving a 10-year-old $500 in cash every month, or that a 14-year-old should receive a $15,000 deposit in a checking account, but making reality transparent—giving child and parent a chance to examine how money is spent and the annual impact of that money—opens the door to meaningful connections between parent and child. KNOWING the number gives families a chance to explore, without judgment, questions like:
Does my financial blueprint reflect who I am or want to be?
Is what I spend consistent with what I say I value?
If I think about what I spend in total over the course of a year—as an annual sum, not a weekly or monthly one—what might I do that's different?
What portion—if any—of that money goes to support things I say I care about? What portion represents support for things I SAY I don't approve of or don’t care about?
What if I asked for (and received) three times what I spend now—what decisions would I make about how to use it?
How much are my parents subsidizing beyond my allowance?
What are my superpowers and how can I mobilize them to manage, enhance or change my financial blueprint?
And here’s the magic: helping a child realize that that an allowance of $500 a month translates to $6000 a year, and taking them through a process of choosing how to allocate that money is a transformative act. They see their spending in a fresh context, reflecting who they are by the choices they make. They are empowered to own—or change—those choices and consider the question, “Who am I?” "Who do I want to be?” and “what resources will I need to be and/or become that person?”
Allowance 2.0 in the Context of Wealth 3.0
There are plenty of reasons not to make too much cash too easily available to young people with little practical experience managing it and abundant opportunity to use it. Allowance 1.0 is the natural default: we hold on to financial control to keep children safe and send specific messages about expectations. Allowance 1.0 is a rational promise to teach kids how to spend, save, share. A grown-up announces a number and doles it out in weekly or monthly segments—ostensibly to teach kids to live within their means. But other than giving them some basic categories, it doesn’t help most 15-year-olds or 20-somethings (or even 10-year-olds) with the actual complexity of decision-making, setting priorities, and managing cash flow. Allowance 1.0 is prescriptive and simplistic, and even the youngest children are savvy enough to game it when money runs low.
Wealth 3.0 is described by author Dennis Jaffe, et al, as moving “from fear to engagement.” Allowance 1.0 is about fear—fear of introducing children to money without significant guardrails, fear they will be spendthrifts, entitled, or reckless, fear they will miss skill-building essential to their future. Allowance 1.0 is about control; Allowance 2.0 is about empowerment, engagement, growth.
Allowance 2.0 Empowers Families. An Allowance 2.0 approach is considerably more challenging—and time consuming—for busy parents to oversee. Allowance 2.0 begins with the how, not the how much, opening the door to meaningful connections between parent and child and empowering children to think about big questions:
How, as a family do we use our economic power?
How do we think about spending, saving, sharing, investing?
What are our priorities as a family and how does the way we use our money reflect those values?
Considering an allowance as an annual sum, not a weekly or monthly one—what might I use money differently?
What portion—if any—of my money goes to support things I say I care about? What portion represents support for things I SAY I don't approve of or don’t care about?
What if I asked for (and received) three times what I spend now—what decisions would I make about how to use it?
How much are my parents subsidizing beyond my allowance?
What are my superpowers and how can I mobilize them to manage, enhance or change my financial blueprint?
Obviously, the timing, depth, and language used to tackle these questions will vary from child to child, age to stage, and family to family. But even the youngest child can consider a question like: “We have money left over this week. Should we a) use it to feed children who are hungry, b) save it for a rainy day, or c) go to Disneyland?” There is no wrong answer here, but rather, an opportunity to talk about the implications of each choice. Allowance 2.0 doesn’t underestimate children’s capacity to grapple with ethical issues and opens the door to a deeper exploration of who the child is—and what the family values.
Allowance 2.0 Tools. A commonly shared version of Allowance 1.0 gives parents three jars—one for saving, one for spending, and one to give. The jars act as vessels for stashing cash but don’t give kids much help with cash flow (i.e., I have to budget for three birthday parties this month; there are none next month, so how do I apportion the money in my jars if I want to buy birthday gifts and still save for that next Lego kit?”).
Allowance 2.0, on the other hand, employs tools that make values and expectations clear, facilitate critical conversations between kids and adults, and help with the mechanics of managing money—whether it’s $20 or $200 dollars a week. All of these tools are available (and explained in more detail at www.HCSFamilyEducation.com. They include:
The Personal Economic Mission Statement, (effective for children 10 to adult), The PEMS activity introduces the idea that an allowance is not just about money, it’s about clarifying purpose.
F.I.S.H.™ The F.I.S.H. Inventory helps children identity non-material assets at their disposal. Delivering the idea that life—and wealth—is not just about money, the F.I.S.H. Inventory makes tangible the intellectual, social, and human capital each member of the family brings to the whole.
The Allowance 2.0 Balance Sheet. Allowance 1.0 offers spending, saving, and giving as financial basics. The Allowance 2.0 formula introduces meaningful language to 5-year-olds that expands their understanding of budgeting beyond the question of where their money is going. For example, they begin to understand that their “Income” is made up of their allowance (practice money), earned income (chores), and windfall (that unexpected cash from Aunt Susie). Kids who are taught to account for all income when they are young are less likely to end up in arguments that begin: “It’s my money; I can do whatever I want with it!”
The Birthday Eve Dinner is an annual milestone, an opportunity to bring some measure of gravitas to the celebration of another year of growth and maturity. The Birthday Eve Dinner gives families a way to acknowledge privilege (parties, gifts, celebration) and encourage responsibility (a new year of added maturity and new abilities).
The Family Values Map acknowledges that family members may not be in lock step when it comes to values. Tensions exist. The map offers a nonjudgmental look at what those tensions are so that when they arise, conversations focus on real issues (values) vs symptoms (whatever the argument is about). Note common values and differences. The differences will be the source of tension when values are not aligned.
Accountability vehicles
Check-ins
Credit score reviews
Subscriptions review
F.I.S.H.™ Update
In an age in which money has become increasingly invisible and AI and algorithms are designed to outwit the most frugal practices, Allowance 2.0 represents an effective means of helping young people become more mindful and purposeful in the management of their assets.
A Last Note: Gifts, Gifting, and Surprise
Allowance 2.0 and the tools that come with it give kids (and grown-ups) new ways to think about mastery over their money styles. But life is rarely tidy all the time. Giving children (young or old) gifts is one of the great joys of parenting and grandparenting. It is an important way to communicate love, mark a special occasion, and share delight. When gifts are given with clear intent and joy, they contribute to the relationship.
But gifts can also be disrupters, sometimes functioning as ‘windfalls’ that make allowances irrelevant. Children whose every desire is satisfied, who have little need or incentive to earn or strive to satisfy their own wants or needs can be inadvertently undermined in the process of developing resilience, purpose, and focus. Shopping sprees and extravagant gifts may be bonding opportunities, but buying everything so that an agreed-upon allowance is essentially irrelevant makes every shopping spree less a special treat and more an expected fact of life.
