Allowance 2.0 for Parents
An effective allowance is a balance sheet, introducing income and expenses with the expectation of balancing. Too often kids receive money to help them learn to spend. This becomes confusing later when they discover they’re also expected to pay attention to income!
Introducing the full formula early on gives young people a greater sense of responsibility and builds language fluency that enables them to work more effectively with advisors later.
STAGES It’s developmental. As children mature, they gain greater responsibility, like going from learning to ride a bike with training wheels to balancing a two-wheeler on their own. And as they get older, they are given longer spans of time to exercise judgement--from a weekly income when they are young to monthly or quarterly time spans through college.
VALUES How we manage money is a direct reflection of our deepest values. Whether we grow up with a value to ‘save for a rainy day’, ‘seize the day’, or share every day, we reflect who we are with every financial choice we make. Helping children be explicit about what they think is important--at each stage of development will help them be self-aware and consistent about how their financial behavior and their values are aligned
POLICIES Introduce the connection between money and policy. Kids need and resist rules. But policies can be introduced as structures for fairness and consistent behavior. And by establishing policies up front, the allowance becomes more than just a means of helping kids learn to spend; they can now think about the connections between fiscal policy and life opportunities.
INCOME Introduces complexity. One of the most confounding statements kids utter is, “It’s my money!” This is code for “I can do anything with it and you have no say!” Parents who give into this bullying open the door to years of power struggles. By clarifying that income arrives in many forms (earned, allowance, gifts, windfalls) and must be managed as total income, we help young people grasp the idea that income has to be wisely allocated--not just hidden from control by mean parents!
EXPENSES Expenses become mindful, not just impulses. Impulse control is a developmental task, improving as the brain develops, and the child becomes increasingly aware of the connections between behavior and consequences. The key is in not overtaxing a child’s ability to focus on multiple categories, but also in helping kids ‘reach’ as they acquire the ability to make good decisions about how and when to spend, how to allocate their resources, and how to delay gratification.
SAVINGS Saving becomes a life skill, not a hit or miss activity. For children who will inherit significant trusts, savings accounts may seem irrelevant. But it is the discipline of saving and stewarding resources that is instilled with this activity, a life skill that is critical regardless of the scale of wealth the family represents.
PHILANTHROPY Philanthropy nurtures life purpose, not just a way to do good. Purpose helps children define themselves. Whether that means finding ways to impact health among children; travel to the stars; underwrite the arts; build parks, or feed the hungry, children who use their resources (talent, time, and money) to make a difference, tend to have fewer identity issues and are less self-absorbed than children for whom money IS purpose.
EMERGENCY FUND Life happens. In a volatile world offspring are subject to natural disaster, illness, loss, and other unexpected life events, no matter how well we try to protect them. Giving them the means and the skills to be resilient and resourceful is a major protection families can bestow on their children.
