3 steps to a personalized income plan for your children
By glblguy
Photo by: wsh1266
This is a guest post by WJ, a husband, father, fellow Christian and frequent commenter here on Gather Little by Little. WJ had made a very informative comment on my article, 10 Ideas To Help Teach Your Kids About Money. I asked him if he might be interested in expanding further on how he helps teach his kids about finances by writing a guest article. Fortunately for us, he was kind enough to do so and I think he did a great job! Thanks WJ!
Here are 3 steps to a personalized income plan for your children:
1. Determine a fixed amount of weekly allowance
The first step is to decide on the amount of the allowance and what chores must be completed in order to receive this amount. For example, in order to receive ten dollars a week, our child must keep her room clean, place dirty clothing in the laundry room, as well as put away clean laundry. Even though the opportunity to earn extra cash is made available, we found it best to make this an all or nothing step. Choose what chores are most important for your child to complete, and then explain in great detail that all of the chores must be completed in order to receive the allowance. If all “normal” chores are not completed, we do not allow a chance to earn extra money.
2. Set amounts for other chores that need completed regularly
In our house (as well as most others I suppose), there are many chores that need done regularly that get neglected. Here is a quick list of some of the ideas we have used:
- Carry firewood into house for fireplace (rack holds about 12 logs): $2.00
- Help clean up after supper (usually amounts to drying dishes): $0.50
- Vacuum carpet in entire house: $5.00
- Dusting furniture and window seals: $3.00
There are a few more, but those are the regular activities that are used to gain additional income in our household. It is also important to set a maximum that can be earned in one week according to the family budget. If the budget allows for $100.00 a month max, then of course you do not want to exceed that. If that boundary is not placed (even if you have loads of cash to give) you will find your child trying to work 23 hours a day when that next Disney vacation package is advertised!!
One option to consider if your budget has reached its limit is to let the child talk to other members of the family. Grandparents often have things they would like completed as well as getting to spend time with the young one. If you are willing to set a schedule to encourage your child’s endeavor, the possibilities are limitless. There are several people in our neighborhood that will pay to have limbs removed from their yard before mowing; general landscaping (removing weeds, spreading mulch, etc.); walking the dogs, and so on. These are activities that I recommend adult supervision for, but they are a great way to encourage wage earning as well as entrepreneurship.
3. Encourage charity, saving, and investment.
Try using any system that will divide the money into categories. We simply use three mason jars. The first jar is for tithing, ten percent off the top of everything earned.
The second jar is the savings/investment jar. Start off with whatever percentage feels right to you and your child. Once a month we deposit this jar into an ING savings account and have set a goal to reach. After that goal is reached, we are going invest in higher earning accounts, and start the process all over. Our daughter danced for five minutes when her initial deposit earned sixteen cents!! It was a great experience to see that connection take place in her mind!!
Finally, the third jar is used for spending however the child wishes (within reason of course). It is important for anyone to enjoy the fruits of their labor.
A few final thoughts
Some of the benefits of this are obvious, others are hidden. One thing that comes into play is the extra amount of time that becomes available. By completing extra chores, your child will create time that was unavailable when the parents were taking care of everything. For us, time is the most precious commodity. That is one of the reasons we encourage opportunities outside the house; it increases time we spend together (more so in the spring and summer), as well as being able to network socially. I will say that it will not take long before opportunities are being turned down.
From glblguy: How do you manage allowance and chores with your children? Do they get a fixed amount, paid by the chore, or a combination of both? Do you make them save and/or tithe? WJ and I would love to hear your stories and perspective so please add a comment below!
January 3rd, 2008 at 7:39 am
This is a great post about how to help children learn to manage money. In our house, my wife and I don’t give our children an allowance. Rather we feel it is important for them to pitch in to the every day chores as a member of the family. There are exceptions where they can earn money and that is by doing work beyond their “normal” chores.
We have also just started a program, I read about online, with our oldest child (8) where we will pay her 50.00 to read through the entire New Testament. There are some ground rules if you will, such as the requirement that we also read the passages she is reading and we all discuss the chapters as they are being read.
We also split up the money our children earn. 10% tithe off the gross and then 45% to a long term savings and 45% into a spending account. So far this break down has worked very well for us. As they grow I plan on recommending they make adjustments to the amounts such that 15% is saved when the go to college.
I also want to note that neither the money break down nor the bible reading plan where conceived by me, but have been gleaned from others.
January 3rd, 2008 at 8:09 am
I always wondered whether making your child save/tithe actually teaches them to be able to save/tithe. I mean if they don’t get a choice, how is it different to paying them a smaller allowance and saving/tithing the money for them? Maybe the discipline of doing it rubs off? I really don’t know.
January 3rd, 2008 at 8:31 am
@Plonkee – I’m sure WJ will chime in too, but for us it’s really about setting habits. For example, we’ve been praying with out children before we eat as a family, thanking God for the food and provisions He has provided us. Our kids will flat out not eat until we pray, regardless of where we are at. The same habits apply to saving and tithing, if you start them early it just becomes a way of life for them. I think as they grow older you allow them to begin making choices. With my older kids they often want to give and save more.
January 3rd, 2008 at 9:03 am
@Plonkee I agree with @glblguy when the kids are young it is about forming habits and teaching them how to think about money. I wish I had the training I’m now building into my life and passing along to my kids.
As our kids grow we can guide them however ultimately the decision will rest on them to make the right choice. I believe this is part of what is meant in the Proverbs 22:6. (Direct your children onto the right path, and when they are older, they will not leave it.)
Part of helping them is teaching them to making correct choices and one area to do this is with the money they are given.
January 3rd, 2008 at 10:29 am
Is it really wise to pay children for their services? They should learn that it is part of normal family responsibility rather than a paid service. I’ve been washing dishes and mowing lawns for free since junior high!
-Raymond
January 3rd, 2008 at 11:03 am
@Jeff Sounds like some good ideas. May try to implement some in our household. Can you tell more where you found the details?
@Plonkee I will say that it is the habit that I am after. To this day I still remember my father refusing to miss tithes even in the most dire of circumstances. As far as the savings goes, my daughter has consistently contributed more than we agreed upon. I wanted her to be active in the saving and investments rather than just do it for her. As I stated, she is just beside herself every time we do a review (once a month) because she has gained on her investment. Thanks for the comment and questions!!
@ Raymond This is a valid point. Most of us, myself included, were not paid for services around the house. Our system is about teaching good money habits and work ethic. “If you want more out, you have to put more in.” There are some things that she does that she does not request money for and we do not offer it for. For example, she is an animal fanatic. She has three cats, a dog, and a tropical fish aquarium that she handles without reward (other than the love and affection of the animals and fish!!) As she grows older, things (such as a car) will come along that she will be responsible for without pay as well. Great comment!!
January 3rd, 2008 at 1:50 pm
We give an allowance, and we don’t base it on chores. I’ve heard reasoning for basing allowances on chores and not. I don’t have a really strong feeling either way, but my daughter is not at all motivated by money, and if it were up to her, she’d never do her chores and just never get paid. So we don’t tie the two together. :)
We start allowances at age 5, so my youngest is just starting out. We have them tithe 10% and split the remaining into thirds. 1/3 is for long term savings (college, car, etc), 1/3 is for short term savings (saving up for a special toy or something), and 1/3 is you-can-spend-right-now-if-you-want-to money.
My daughter tends to take the last third and roll it into short term savings. My son tends to try to convince me that all of his money should be spent now. :)
January 3rd, 2008 at 2:35 pm
I don’t believe in allowances, but I do pay generously for chores and such. I think that ‘giving’ money is a bad idea at any stage, but rewarding for earning is a good thing.
I’m also the kind that pay for good grades in school. It encourages them to see outcome for performance (like in real life. Do a good job, you get good pay, etc).
I also like the idea Dave Ramsey came up with, matching dollar for dollar on the kid’s first car. Not PAYING for it, but kicking in for it based on how much they’ve saved up. My 12yo (almost 13)is taking this to heart and has over $500 in his account from school, mowing the lawn, and other household chores. Looks like it might get expensive for me by 16. Oh well.
January 3rd, 2008 at 3:18 pm
My child gets 25 dollars a month. If she screws up badly I start deducting cash.
She puts some of it in her 529 plan and gets to spend the rest. Currently she wants to spend 5 bucks a month to add texting to her cell phone.
I don’t like it but it is her money to waste and as long as some goes into the 529 I’m content.
January 3rd, 2008 at 3:20 pm
I forgot to add that she also gets supplemental income. She gets 25 dol1ars for reading Motley Fools Financial Guide for Teens and then another 25 dollars for reading it again.
She also gets 10 dollars per A on her report card and 5 dollars per B. She gets 5 dollars deducted for any C and 10 dollars deducted for any D or F.
Again, part of that windfall goes into her 529 which I’m hoping will at least cover her books during college (which are outrageously priced.)
January 3rd, 2008 at 3:34 pm
Rats, I knew I should have gone live with my post first. I have one coming out tomorrow on the same topic. If you can’t beat ’em, join ’em. I guess I will link to you. :)
January 3rd, 2008 at 6:11 pm
For some crazy reason, Jeff made a comment earlier and WordPress ate it, so here it is again BUT in two parts as WordPress also seems to have an issue with his whole comment being placed into one comment…too weird, here’s Part 1:
@WJ the NT 50.00 challenge was taken from here and the savings break down was taken from a guy who went bankrupt and then vowed never to let his kids get into that situation. I think he was selling some kind of investment advice but I couldn’t find that site any more. This guy broke his son’s money into a 50/50 split with 50% invested for retirement. I changed it to the 10/45/45 because of my conviction that tithing is the most important thing one can do with their money.
January 3rd, 2008 at 6:16 pm
Part 2: What Raymond says really resonates with me, which is why our kids don’t get an allowance. I think it is better to teach them to be creative when coming up with ways to make money. One of my kids had to “earn” back some money because she lost a couple of school library books. It was a great lesson for her to come up with how she was going to earn the money especially because 45% of it goes into savings.
January 4th, 2008 at 4:11 am
We give our kids an allowance. Just started, for the 13 and 14 year old.
The conditions are that they must keep weekly accounts and save 10%.
We have not included the issue of charity etc yet. Maybe next year.
And also the allowances are not tied to chores. (Have not tried, but probably they will be like Lynnae’s daughter. Prefer to starve than to do chores…hehe)
January 4th, 2008 at 8:23 am
@Jeff Thanks for the extra info.
@Lynnae Sounds like a good plan. We started at five as well. I bet you hear some interesting reasoning from you son as to why he should be able to spend it all now!! Thanks!
@Randall We also pay for good grades. I had not thought about the car match. Sounds like a good plan, and it would encourage saving tremendously during the teenage years. Good luck, and thanks for the comment!!
@Cheapster Bob Thanks for the comments. Do you have a set amount that you prefer her to place in the 529 plan, or is any amount ok? Has she read the book yet, and is she required to discuss it with you as well, or just read it for the money? I totally agree on the college textbooks!!! Ebay and Amazon are a great starting point!!
@ Fathersez I like the idea of the weekly accounts. Thanks for the comment!!
January 4th, 2008 at 8:52 am
Great post, coming holiday will make my kids more efficient,
Thanks a lot,
Tracy Ho
January 25th, 2008 at 7:30 pm
Really appreciating the discussion. Question: the reason I haven’t paid for household chores is that I feel like they are the price of living here. We all contribute to making our home a comfortable place, you know? However, teaching the connection between money and work also makes sense to me…comments, feedback?
January 25th, 2008 at 7:35 pm
Sorry, hadn’t read all the comments yet and just did. I think maybe a certain amount required and then paying for above-and-beyond might be a good compromise?
January 25th, 2008 at 8:40 pm
@Analisa: I’m sure you could tell I agree with not paying for chores but rather believe that as we are part of the family the kids need to do their part as well. However we do look for other ways for them to earn money, for example we started paying for getting good grades.
Our break down goes like this:
A 2.00
B 1.00
C -1.00
D -2.00
F -5.00
In the classes where they don’t get a letter grade they get 2.00 for every Excellent, 1.00 for every Satisfactory, and -2.00 for every Needs Improvement. I wrestled with the docking them for getting a needing improvement mark, however both my kids are at the top of the classes so that mark would equal an F.
In addition to the letter payout they get some extra reward if they get a special award in school such as most improved student. Also if they make the A honour roll they get an additional 10.00 and an extra 5.00 for making the B honour roll.
Adding up all the money and it can turn out to be quite the payday for them. :)
January 26th, 2008 at 2:11 am
@Analisa- That sounds like a great idea. The key is to realize your own values and feelings in this matter, seek guidance from above, and figure out where your heart leads you. There are so many variables in family situations such as this that there can never be a one system fits all. What we have done works well for us, and has taught my daughter the connection between work and money, as well as the importance of saving (thus having your money work for you.) As stated in the article, I would encourage you to be as specific as possible when first implementing your system. Kids have a glorious ability to “think outside the box,” so firm ground rules are imperative. Thanks for the comment!! Let me know what you decide, and good luck!!