Allowance [Giving allowance to child]

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ImaBeginner
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Allowance [Giving allowance to child]

Post by ImaBeginner » Sun Jun 10, 2018 9:16 pm

I am getting started on giving my oldest an allowance. She is 8.
I am rich by all metrics, and want her to learn to manage money. There are many books I have read on the topic, but I am wondering what the hive mind has to say.

Initially I plan to provide a very small sum for her (she has virtually no current money or cost) and give her a few rules.
Rule 1. 10% to church
Rule 2. Xx% to savings
Rule 3. Rest to use as she wishes.

What did you guys do? What was the % savings?
I am thinking a Bank if Dad savings account with a high % per year is a good way to teach about compound interest.

ResearchMed
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Re: Allowance

Post by ResearchMed » Sun Jun 10, 2018 9:27 pm

ImaBeginner wrote:
Sun Jun 10, 2018 9:16 pm
I am getting started on giving my oldest an allowance. She is 8.
I am rich by all metrics, and want her to learn to manage money. There are many books I have read on the topic, but I am wondering what the hive mind has to say.

Initially I plan to provide a very small sum for her (she has virtually no current money or cost) and give her a few rules.
Rule 1. 10% to church
Rule 2. Xx% to savings
Rule 3. Rest to use as she wishes.

What did you guys do? What was the % savings?
I am thinking a Bank if Dad savings account with a high % per year is a good way to teach about compound interest.
What will the "savings" be for, that she will understand?

RM
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ThankYouJack
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Re: Allowance

Post by ThankYouJack » Sun Jun 10, 2018 9:32 pm

I have a bank of Dad with 10% interest for cash gifts to my children. I haven't started an allowance yet but when I do, I don't think I'll have strings attached that they need to donate or save a certain amount. Seems like too much micromanaging to me but maybe this thread will change my mind.

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Sandtrap
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Re: Allowance

Post by Sandtrap » Sun Jun 10, 2018 9:49 pm

Grew up on a farm.
Chores. Everyone worked. All ages.
No Allowance.
Collected bottles and took to store for $.
Later, mowed lawns for $.

Later Later Later, my boys helped clean up construction sites on the weekends for pocket change, sometimes.
Merit prop to earnings. Tit for tat.
Everyone's different.
Research threads and posts on this topic. Zillions on all sides of the coin.
j

ImaBeginner
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Re: Allowance

Post by ImaBeginner » Sun Jun 10, 2018 10:18 pm

Sandtrap wrote:
Sun Jun 10, 2018 9:49 pm
Grew up on a farm.
Chores. Everyone worked. All ages.
No Allowance.
Collected bottles and took to store for $.
Later, mowed lawns for $.

Later Later Later, my boys helped clean up construction sites on the weekends for pocket change, sometimes.
Merit prop to earnings. Tit for tat.
Everyone's different.
Research threads and posts on this topic. Zillions on all sides of the coin.
j
This has been the approach thus far. I feel that there is some benefit to structured “earnings” for budget purposes as they grow. Through reading there is a good mix of opinions, thus far, we are on the side of a small allowance which can be blown on a terrible decision without real consequences other than a lack of future money for a different expense. Our viewpoints are in favor of making the mistakes while they are young and can be recovered easily rather than in later life when consequences can be serious.


Additionally, my neighbors are “jerks” and ruin my lessons related to work/cost/earnings. At age 6 she made 24 dollars in an hour with a lemonade stand. Not sure if they understand the reasons small child in an affluent suburb has a lemonade stand. She didn’t even get to figure out what the correct change was one time during that hour.

golfCaddy
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Re: Allowance

Post by golfCaddy » Sun Jun 10, 2018 10:22 pm

Some people like allowances, but they don't teach much. The most basic money lessons are hard work to earn income and then creating a budget to live within that income. Receiving money for doing nothing, when you have zero expenses, doesn't reflect that. Maybe, an allowance teaches kids what's it like to have a trust fund?

Dottie57
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Re: Allowance

Post by Dottie57 » Sun Jun 10, 2018 10:59 pm

golfCaddy wrote:
Sun Jun 10, 2018 10:22 pm
Some people like allowances, but they don't teach much. The most basic money lessons are hard work to earn income and then creating a budget to live within that income. Receiving money for doing nothing, when you have zero expenses, doesn't reflect that. Maybe, an allowance teaches kids what's it like to have a trust fund?
I received an allowance as a little 3 or 4 yr old. Started out as a nickel. Sometimes I spent it on a cheap toy , a ride on the mechanized elephant in the grocery store, , or else I would put it in my Huckleberry Hound bank. I’d shake it with glee to hear it jingle.

A year or so later I received 10cents as allowance. One time My dad took me around to Woolworths and a hardware store to pick out a metal ring with glass stone for purchase. Of course I lost the ring soon, but still remember the day spent with dad.

Mom bought me a Barbie Doll when I was 6. But I saved up my allowance and any extra coins I had to buy the outfits. The store clerks would have to count out the price of an outfit from my pennies, nickels and dimes.

In my early teens I started doing housework for an increased allowance. I learned to iron my dad’s Shirts, dust, vacuum, wash and dry dishes.

At sixteen I took on a part time job and put my money money in the bank. I also bought clothes my parents didn’t deem necessary.

Now a Boglehead, I am happily retired.

Having an allowance certainly didn’t hurt. I learned about choices early on and learned to save.

keepingitsimple
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Re: Allowance [Giving allowance to child]

Post by keepingitsimple » Sun Jun 10, 2018 11:30 pm

ImaBeginner wrote:
Sun Jun 10, 2018 9:16 pm
I am getting started on giving my oldest an allowance. She is 8.
I am rich by all metrics, and want her to learn to manage money. There are many books I have read on the topic, but I am wondering what the hive mind has to say.

Initially I plan to provide a very small sum for her (she has virtually no current money or cost) and give her a few rules.
Rule 1. 10% to church
Rule 2. Xx% to savings
Rule 3. Rest to use as she wishes.

What did you guys do? What was the % savings?
I am thinking a Bank if Dad savings account with a high % per year is a good way to teach about compound interest.
One additional rule (#4) you might consider including: Add to her allowance enough money to cover a recurring expenditure she may have. But just lump it in with the total amount given.

For example: Include enough extra in her allowance for her to be responsible for paying for her own school lunches. That would round out the real-world scenarios regarding managing money (tithing, savings, fun-money, bills). Doesn't have to be school lunches, but I'm sure you get the gist.

Just a thought :happy

Hillview
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Re: Allowance [Giving allowance to child]

Post by Hillview » Mon Jun 11, 2018 6:46 am

kids get good sized allowances. son 1 (12) has invested in apple and shake shack and is not in vanguard total market ETF. son 2 (10) has quite a nice baseball collection thus far but he doesn't spend it all at once and has ~$200 saved up. allowances are not tied to chores. Ron Lieber's "The Opposite of Spoiled" is an interesting read.

We started allowances at age 7. We let them use it however they want to (with some rules about not buying things we don't allow in the home etc)

NotWhoYouThink
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Re: Allowance [Giving allowance to child]

Post by NotWhoYouThink » Mon Jun 11, 2018 7:02 am

Hillview wrote:
Mon Jun 11, 2018 6:46 am
We started allowances at age 7. We let them use it however they want to (with some rules about not buying things we don't allow in the home etc)
That sounds like a good rule to me. We also had no rules about saving or donating their own money, but they knew that we both saved and donated because we talked about it. Not in structured lectures but just as we talked about our day.

In grade school they could use their allowances for toys, since we only bought those for birthdays and Christmas. Around high school they got more allowance and used it for clothes and entertainment as well, so it was their job to budget for that. That also helped us keep things "even and fair", since we had one spender/clothes horse and one miser.

Theseus
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Re: Allowance [Giving allowance to child]

Post by Theseus » Mon Jun 11, 2018 7:29 am

I was exactly in the same boat (check my similar post a year ago). After neglecting for many years, I started allowance for my DDs. Youngest was 11 when I started.

We calculated all expenses they incur (cloths, shoes, etc.) annually. Then we set up a weekly allowance based on that. Got them a bank account each with a debit card. They are responsible for buying all the items. And they have to keep track of their expenses in the Mint. We periodically analyze together to see where they are spending their money. I approve (or rather disapprove) major expenses (such as expensive pair of shoes, or an iPhone).

But the deal I made is that if they save the money and invest in Vanguard S&P 500, I will match $ for $. With a promise that they won't touch it until they are 35 (we will see if they keep the promise). But purpose served. They really were excited to see their savings invested and doubled. And so far keeping track of expenses.

I hope this teaches them some financial management.

goodlifer
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Re: Allowance [Giving allowance to child]

Post by goodlifer » Mon Jun 11, 2018 8:14 am

My daughter has had chores and an allowance since 1st grade. She is expected to bring in the mail on her way back from the school bus, clean the litter boxes, and feed the fish and dog. She also does smaller chores like bring the clothes basket up the stairs since I can't do it. For that, she gets $25 a month put into an online account meant for a car or college. She gets extra money for extra chores once in a while that doesn't go into the savings account, and her birthday money. She gets to spend her extra money on whatever she wants. It took all of my strength to let her buy an expensive pair of Le Bron high tops just because all of the kids had them when she was 10 years old, but it taught her a good lesson when she decided that she really didn't like them and all of her money was gone. She is much more careful with her spending now that she has a few mistakes under her belt, so I think it was money well wasted. Sometimes she even chooses to put the extra money in her savings account. Now that she is doing more complicated chores like the laundry, I'm thinking of giving her a raise to $50 per month.

pennylane
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Re: Allowance [Giving allowance to child]

Post by pennylane » Mon Jun 11, 2018 8:24 am

Remove the donation requirement, its ridiculous. She should want to donate, not be forced.

Allowance should be replaced with a written pay plan for chores around the house.

For example:
take out garbage: $2.50
put away dishes: $2.00
clean room: $4.00
walk the dog: $1.25
feed dog .50 cents
(do not reward for school work, this should be something that is expected, not rewarded for)

earn $20 for the week and get an additional $2 bonus etc etc

This will teach her there is a direct correlation between taking action and earning money. The more you earn, the higher your bonus. The more in the bank, the more it compounds.

Don't overpay your child, you might be able to give her an exorbitant amount of money, it doesn't mean you should. Lessons she learns now will shape her for the rest of her life.

NotWhoYouThink
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Re: Allowance [Giving allowance to child]

Post by NotWhoYouThink » Mon Jun 11, 2018 8:31 am

Chores are an obligation not a choice, so we never paid for them. A paid job you can quit or not show up for. We didn't provide that option.

My bank balances got down to zero a few times in college and shortly afterwards. No one had any money sitting in a retirement account or a wait-until-you-are-35 account for me. I think I would have resented it. Sometimes you need money now, before your real earning years start. You have your 20s to your 50s or 60s to build up the nest egg. If someone had an account in my name that I was not allowed to spend or was "guilted" into not spending, that would have felt controlling and demeaning. But that's me.

Anyone here have such accounts from parents?

Glockenspiel
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Re: Allowance [Giving allowance to child]

Post by Glockenspiel » Mon Jun 11, 2018 8:44 am

If your child wasn't already 8, I'd think an allowance is a great idea.

In general, my opinion is a child is a part of the household, and everyone in the household works to keep the household up and running. If you pay a child $1 to clean their room, most of them are just going to choose to not clean their room, because they don't fully understand the value of a dollar.

I think giving a child money for nothing should really only be done when a child is first learning about money and what can be bought for how much money they have. After a certain age, I'd divide chores that "need to be done" to keep the household running, and chores that go "above and beyond what should be expected from them". Then, I'd only pay for chores that go above and beyond.

A good rule of thumb is a dollar a week per year of age. If you have an 8 year old, that's like $30-$35 a month. Don't give her more than that, even if you can easily afford it.

marcopolo
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Re: Allowance [Giving allowance to child]

Post by marcopolo » Mon Jun 11, 2018 9:05 am

A while back, there was a thread on using UTMA accounts for kid's savings. As a part of that I described how we handled allowances for our kids. Not necessarily recommending it for anyone, but it has worked out very well for us:
Can't speak for others, but here is why we did use them (UTMA). Had nothing to do with saving a few dollars on taxes, that was just a small side benefit.

We used them as way to teach our kids about finances. The schools do a great job of teaching math, sciences, humanities, etc., but there is no curriculum on personal finance, so we took it upon ourselves to try to teach our kids.

At an early age we gave our kids an allowance (salary) and made them responsible for some of their expenses, the amount and the expense they were responsible for grew as they got older. By about age 13 they were handling just about all of their expenses except housing and eating at home (going out, clothes, electronics, etc.). They were also given the option of forgoing some portion of their "salary" to be put into the UTMA account. Whatever they chose to put in their got doubled (think of it as a 401k with 100% match). We also add additional funds from time to time (profit sharing plan!). I have always viewed this as their money, so no concerns about loss of control. I think of it as a 401k plan, with cliff vesting at age 21.

Over time, they have learned to differentiate between wants and needs. They are pretty frugal about how they spend their money (comparison shop for what they need). They have a very high savings rate, which we hope will continue when they have real jobs. They have learned to prioritize their wants, we are happy to see that they value experiences over stuff.

They have also learned a lot about investing, Asset Allocation, power of compounding, etc. At age 16, I let them start managing the investments as well. So far, they are adhering to a boglehead type investing regimen.

Sure, there is the risk that their behavior might turn on a dime at age 21, but I am OK with that. It has served as a useful tool for our parenting style. Certainly not recommending this for anyone else, just describing one possible use of it. This was completely separate from 529 plans set up for their college expenses.
Once in a while you get shown the light, in the strangest of places if you look at it right.

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JPH
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Re: Allowance [Giving allowance to child]

Post by JPH » Mon Jun 11, 2018 9:43 am

Learning to spend is just as important as learning to save. Don't forget to teach her how to evaluate the cost of what she wants, compare that to how much $ she has, exchange her money for the item, count her change, decide what to do with the remainder, & etc. Ask her, "Did you get a fair deal?" "Are you happy with what you bought?" She will learn more or less naturally that saving will permit her to repeat the process. Encourage her not to just "blow through" the discretionary part.
While the moments do summersaults into eternity | Cling to their coattails and beg them to stay - Townes Van Zandt

Doctor Rhythm
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Re: Allowance [Giving allowance to child]

Post by Doctor Rhythm » Mon Jun 11, 2018 8:20 pm

We're in the group that doesn't tie chores to allowance. The former is an obligation to your family/social unit; the latter is a way to teach and encourage savings and responsible spending. Allowance money is only expected to pay for discretionary spending, not basic needs or education-related expenses. We sort of round up from the $1 per age-in-years per week rule of thumb. It gets paid monthly directly to his checking account, which he can access with a debit card.

526297
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Re: Allowance [Giving allowance to child]

Post by 526297 » Mon Jun 11, 2018 9:51 pm

I have four kids. We give $1/year of age. They earn for great school work (we homeschool) and chores. The first few weeks we gave them cash and took them to the swap meet, the Target dollar section, and places where they could find fun things that they could afford. We let them spend what they wanted. Then we started talking. We talked about budgets and having to save if you want something big, investing so your money makes money, and opening a bank account to hold it, etc. We talked about why Mom and Dad save so much, amazing things they could do saving (travel during college, buy a house young, etc) Each week I started asking, how much of your allowance do you want to save this week? It didn't take long for them to choose saving. Now they choose to put in 70% or more instead of spending, sometimes all of it. My 9 year old even connected the dots when she realized how much money she wasted in the beginning.

Dandy
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Re: Allowance [Giving allowance to child]

Post by Dandy » Tue Jun 12, 2018 7:28 am

As a kid I had some chores and got a small allowance. The chores were not directly tied to the allowance they were obligations for being part of the family. At an early age mom took me to the bank and opened a passbook savings account so I could deposit some of my gift money (birthdays, etc). They allowed me to spend my allowance and gifts on what I wanted but we usually had a discussion about them beforehand. Sometimes kids have to make a minor mistake or two to learn the fleeting pleasure of a dumb toy.

The allowance, bank account and spending discussions worked for me. I became much more of a saver than spender -- to this day. I lived below my means even before i had means. :happy

For our children we didn't have an allowance but they had gift money that we essentially did the same i.e. bank account and discussions about spending. Later when they started earning money we opened a Roth account and matched their savings for a short time. We always had discussions about spending/savings even about our issues. e.g. why we got the parking lot view at the vacation hotel instead of the beach view. And why when I was rear ended and got a few hundred dollars I didn't have the dent fixed but saved the money instead. (It was an old car everything worked and money was tight!).

This helped shape their view toward how they spent their money. It has worked - luck played a large role since kids are very different. Our approach wouldn't necessarily work on others.

RickBoglehead
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Re: Allowance [Giving allowance to child]

Post by RickBoglehead » Tue Jun 12, 2018 8:04 am

The allowances I gave to my children weren't large enough to have components to them...

I would never ask a child to give a percentage of their allowance to a religious organization, they are too young to understand many things about religion.

I gave my children a small allowance and they did chores. At some point they had the Bank of Dad, for depositing to earn interest and for gifts (I put them in my account, kept the balance on Quicken).

IMO, trying to do "lessons" about money is way, way overthinking it. When the child goes to spend money and realizes they don't have enough, they figure it out pretty quick. Oldest worked as a movie usher to make spending money when he was old enough. Youngest chose not to work until college, and had no spending money to speak of.

sco
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Re: Allowance [Giving allowance to child]

Post by sco » Tue Jun 12, 2018 7:07 pm

When the kids were in the allowance phase, dollars per week = age. We did this, keep in mind this happened around the ages of 6-15

$1 week into the charity envelope, around the holidays they could decide how this would be spent or donated. They quickly learned that they liked to buy gifts for kids that wouldn’t get any. They always had $52 to do this at the end of the year, and we would match it.

Half of remaining they could do anything they wanted with, no strings attached. And I mean any stupid thing that they could regret the next day ;)


Half of remaining into a savings envelope, rule with this was that they needed to discuss it with us, think about it for a minimum amount of time before it could be be spent. 2-4 weeks or something. They quickly learned the difference between impulses and what was worth saving for. We had some discretion on how they spent the savings funds, but they liked watching balances grow and would often put gifts in too. Rarely was there an issue.

They learned a lot from the money that they could spend freely.

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BolderBoy
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Re: Allowance [Giving allowance to child]

Post by BolderBoy » Wed Jun 13, 2018 8:46 am

I don't understand the idea of an "allowance" - not even sure what it means.

Make a deal with her that you are willing to pay her money for work she can and is willing to do. "Money for Work" should be the lesson. Pick things that you do now, that she can do instead (transfer of work from you to her) for which you will personally compensate her. Negotiate the amount you'll pay her in such a way that she starts learning that work has some value, determined via the negotiation. Get her to begin to understand that an employer is paying her for her time off: playtime = no money, worktime = money. She'll learn to ascribe a value to her playtime, playtime she'd be giving up in order to work.

It is how the real world operates.

(NB: I do not have children)
"Never underestimate one's capacity to overestimate one's abilities" - The Dunning-Kruger Effect

finite_difference
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Re: Allowance [Giving allowance to child]

Post by finite_difference » Wed Jun 13, 2018 10:25 am

I am trying to think about how I developed my sense of responsibility of money. I think it was mainly by observing my parents. I think at some point I got an allowance and at I did lawnwork for the neighbors and got paid. But mainly I just got a little money when I needed it for something, like to buy candy. My parents were naturally rather frugal although traveling to see the world and visit family was a high priority. Learning the math behind compounding, and learning the concept behind a budget, I think are the most valuable lessons. Basically, LBYM, and you will be fine. Don’t throw money down the drain with high interest loans (understand interest calculations.)

It’s really just math. There’s a lot of value in developing good habits, but without understanding the math it’s hard to justify. Otherwise it’s purely on faith, rather than faith + understanding.
The most precious gift we can offer anyone is our attention. - Thich Nhat Hanh

finite_difference
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Re: Allowance [Giving allowance to child]

Post by finite_difference » Wed Jun 13, 2018 10:25 am

To the $ in age parents — is that 2018 dollars, and do you do a COLA adjustment??
The most precious gift we can offer anyone is our attention. - Thich Nhat Hanh

sco
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Re: Allowance [Giving allowance to child]

Post by sco » Wed Jun 13, 2018 12:45 pm

finite_difference wrote:
Wed Jun 13, 2018 10:25 am
To the $ in age parents — is that 2018 dollars, and do you do a COLA adjustment??
It was around 2005-2014 and no I didn't COLA it.
Even Dollar bills are easy, and of course you could make it $2/year or whatever you want.

Tried to keep it very simple for all involved.

fourwheelcycle
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Re: Allowance [Giving allowance to child]

Post by fourwheelcycle » Wed Jun 13, 2018 1:12 pm

ImaBeginner wrote:
Sun Jun 10, 2018 9:16 pm
Initially I plan to provide a very small sum for her (she has virtually no current money or cost) and give her a few rules.
Rule 1. 10% to church
Tangentially related story - fathers, allowance, and church.

When I was in college I joined a non-residential fraternity that had room for one student to live there each term, for free, to serve as the caretaker. When my turn to live in the frat came up I asked my father if he would give me, or share with me, the room fee he would be saving.

In response, he told me a story about a little boy whose father gave him an allowance of two dimes each week (my father grew up during the depression) with the rule that one dime was for the boy and one dime was for church. One day, on his way to church, the boy fell and one of his dimes rolled into a sewer grate along the curb. The boy thought for a minute and then prayed "I'm sorry dear God, I fell and lost your dime".

My father said it was my dime, not his, that I had saved by living in the fraternity.

metrunt
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Re: Allowance [Giving allowance to child]

Post by metrunt » Thu Jun 14, 2018 7:16 am

10 yo gets $5 a week. He does chores, but his allowance is not tied to whether he does them or not. We use allowance as an opportunity to understand aspects of money. Primarily, tracking income and expenses, and planning to have cash on hand.

Any amount he wants to put into his college fund, I'll match.
He can take the rest in "pocket" or in the "bank".
If it's in his 'pocket' it's his cash free to spend on what he wants with the risk he could lose it.
If it's in the "bank" he has to withdraw it out and put it in "pocket" before we leave the house.

He keeps track of each expenditure it on a spreadsheet.

barberakb
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Re: Allowance [Giving allowance to child]

Post by barberakb » Thu Jun 14, 2018 1:31 pm

ImaBeginner wrote:
Sun Jun 10, 2018 9:16 pm
I am getting started on giving my oldest an allowance. She is 8.
I am rich by all metrics, and want her to learn to manage money. There are many books I have read on the topic, but I am wondering what the hive mind has to say.

Initially I plan to provide a very small sum for her (she has virtually no current money or cost) and give her a few rules.
Rule 1. 10% to church
Rule 2. Xx% to savings
Rule 3. Rest to use as she wishes.

What did you guys do? What was the % savings?
I am thinking a Bank if Dad savings account with a high % per year is a good way to teach about compound interest.
I do 20% savings / 10% charity or church / 70% spend as you wish

working well so far

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