- Money Shame and its implications
- The importance of picking the “low-hanging fruit” that can save you money
- Talking openly about finances with your spouse so that your children get used to money conversations
- Strategies to reduce the accumulation of stuff and change the conversation concerning stuff, even in the context of strong cultural norms promoting it
- Starting the “delayed gratification” discussion early
- Emergent financial literacy
- Brad & Ted Klontz’s money scripts – unconscious attitudes that you hold towards money
- Being open about your mistakes to help your kids avoid similar ones
- Simple talk about investing for your children
- The low-down on FAFSA (Free Application for Federal Student Aid): You NEED to file this if your kids are going to college, and here are some resources Kelli recommends (need link).
- Important points to consider when choosing a 529: Good resources include Savingforcollege.com and Morningstar.com.
- Kelli’s book recommendation – Baby Bargains by Denise and Alan Fields
- You can reach Kelli on Twitter @kelligrant or at https://www.facebook.com/KelliGrant.money.
When the money spigot can always be on, how do you teach money smarts?
Why one of your first conversations as a CFP or a financial advisor should be kids’ money smarts
Why the classroom setting isn’t the best place for money smarts to thrive
The four most important lessons for a young child to learn about money smarts
Why the transparent jar matters
Why you can’t get too basic
How Tom set up his 7-year-old’s allowance
FamilyMint: the virtual allowance program Tom used
The “Dad is a dummy.” theme rears its head again. For more, listen to my interview with Bill Dwight.
Survey of the States: Find out the financial literacy requirements in your state. (Hint: They’re not pretty.)
Learn a new bedtime ritual that will help your children grasp key financial concepts.
Institute a match to incentivize kids to use their Share jar money.
Tom’s advice about how to use matching to teach children the money values you want them to learn is wonderful. If you listen to nothing else, then listen to this section (31:00).
I will donate $100 to the classroom of your choice via DonorsChoose. (Just message me on Facebook.)
The cryptocurrency allowance? Yeah, it’s a thing. And this is NOT an endorsement.
Learn a creative way to answer the question, “How much money do you make, Dad?”
The Millionaire Next Door: Read this book to learn what the typical millionaire actually looks like.
- Another book recommendation: Raising Financially Fit Kids, Revised by Joline Godfrey
Total Cents: Tom’s kids’ blog
Lenox Advisors: Money-Smart Kids
So you’ve been following the one-dollar-per-week-per-age-of-your-child allowance system for a while. However, now you have a tween, and you feel that the time has come for her allowance to mature (whether or not you think she will). Your tweenager (Is that a thing?) is at a perfect age to start taking on more money responsibility. I call this new “upgraded” allowance the Breakthrough Allowance, and the following section of my book for parents, The Art of Allowance , describes how to get things started with your tween or teenager.
Don’t be surprised if folks not using this plan are flabbergasted by the amount of money in the Breakthrough Allowance. Without context, friends and family might think you’re completely off your rocker, as mom Melissa Disharoon discovered in a recent episode of The Art of Allowance Podcast. Her sister initially scoffed at the hundred bucks a week granted to Melissa’s kids, but when Melissa explained that there was a method to the madness—and that this amount wasn’t just a handout—the reasoning became clear.
The Breakthrough Allowance (from The Art of Allowance)
Your tween or teen is now ready for the Breakthrough Allowance, a major developmental step. She’s moving past the starter allowance detailed earlier. Her responsibilities will increase substantially. She’ll create a yearly spending plan, and her allowance intervals will change. You may even decide to incorporate a digital allowance as I explain below.
Since she is “graduating” from her starter allowance, a little celebration might be in order. Before she embarks on the next stage of this journey, commend her for the progress she’s made in learning the three core money-smart skills: saving for goals, making smart money choices and distinguishing needs from wants. Let her know this step is a meaningful milestone.
There are some obvious areas of responsibility for your burgeoning money maven: clothes, communication, gifts and food. Don’t let the “food” category scare you. I’m talking about bringing versus buying school lunch, not raising her own farm animals. (Although that undertaking would certainly teach her responsibility.)
You’ll be increasing her total allowance amount substantially to accommodate for these new areas of control. The additional responsibilities of clothes, communication, gifts and food all belong in the Spend Smart domain. This time is a good one to consider using a digital allowance like the options offered via FamZoo or FamilyMint. (Links are available at theartofallowance.com .)
A digital allowance enables you to automate the allowance distribution process into virtual “jars.” You can also automate interest and matching. Part of her progression to becoming money-empowered is learning how to become digitally money-smart. Though a digital allowance simplifies the process, automation is silent, and you’ll want to make sure you continue the money conversation with your child.
I suggest you continue to nudge or mandate an “opt-in” to the Share and Save jars (real or virtual). You may decide to give her free reign, but with the increase in responsibility, keeping those nudges in place is probably a good idea. In fact, if you employ a digital allowance, then you can teach her the power of automatic deposits into Share and Save accounts so that she never sees—and isn’t tempted by—the money in her discretionary Spend Smart account.
Also, the overall percentage of the Share and Save “opt-in” contributions will likely go down, as she’ll be controlling much more discretionary income with the Breakthrough Allowance. Of course, it’s your Art of Allowance, and you may mandate larger chunks of money for either the Share or Save jars or for both.
Giving your child control of clothes purchasing as soon as you can is beneficial. You’ll be shocked (unless you already have a teen) at how quickly her friends’ opinions will impact her life. Without a plan, a clothing decision swiftly becomes something for which adult input is not solicited—until the time comes to swipe the credit card.
Transferring clothing responsibility to your child helps stave off nagging for twenty bucks here and thirty bucks there. More importantly, your child then has skin in the game and will more thoughtfully consider her purchases. I think you’ll find implementing this plan will save you significant money in the long run.
I wish we’d tracked spending for clothes, communication, gifts and food leading up to the Breakthrough Allowance. I’d love to say we knew exactly how much she should budget per month on clothes. But we didn’t. I tip my cap to those parents who do.
We did sit down with our twelve-year-old at the start of the Breakthrough Allowance process to help her work through the proper monthly amount, using a spreadsheet which I created from her yearly spending plan.
If you’re looking for a helpful workbook to further walk you through this process, David McCurrach’s Allowance Magic: Turn Your Kids into Money Wizards is excellent. (The link is available at theartofallowance.com.)
If and when (okay, when) you decide your child should have a phone, she should at least pay her portion of the monthly bill. This practice is particularly easy to do if you’re using an automated digital allowance.
My wife and I typically gift our hand-me-down phones to our daughters. Some folks have their kids pay a nominal amount for used phones. Your choice. Interestingly, our older daughter would wait as long as possible to get a free phone. Though she’s more of a natural spender than her sister, she wanted to direct her money to other stuff she really cared about. And yes, she’s still learning about the impermanence of the “jolt” that stuff brings. Building this knowledge base takes time.
Our younger daughter, a more natural saver, decided she wanted a newer, faster, pricier phone with a good camera and saved for it using Save jar funds. However, she did buy a refurbished one to save herself some money.
Adding gifts for friends to your daughter’s responsibility basket is sensible. This practice forces her to think—yep, Spend Smart —about her own gifting. Watching this change in perspective is funny. Once our daughter became the one forking out the gift money, she decided that good enough was okay.
When your child is responsible for buying gifts, they become generally more meaningful. Frankly, we all know what happens to a kid’s creative gift idea when she realizes you’ll cave and take her to Brandy Melville in the 11th hour. Adiós, plan! When the money is coming out of her pocket—or jar—a light bulb goes off. She becomes the Martha Stewart of gifting.
One of the best pieces of advice offered in Ron Lieber’s terrific book The Opposite of Spoiled: Raising Kids Who Are Grounded, Generous, and Smart About Money is to have your child make his own lunch.* If you want to improve your family’s morning routine, then try this trick. It works wonders!
We made a deal with our kids—we’d buy lunch fixin’s at no cost to them. The decision whether to bring lunch or buy it at school with their Breakthrough Allowances was theirs. This system serves as an incentive against blowing money on too many school lunches—which can add up. We also included money for after-school snacks on the local boulevard with friends. These relatively small expenses can add up fast, so make sure to try to account for as many of them as possible when you negotiate the Breakthrough Allowance with your teen or tween.
I don’t, however, recommend going cold turkey and budgeting nothing for school lunches. When you first set up the Breakthrough Allowance, you’ll want your child to allocate money for a few school lunches per month. You’ll need a safety valve on those “special” mornings when your child has a meltdown, and absolutely no lunch is forthcoming. It’s only a matter of time. Be prepared!
Change the Frequency
When you transition to the Breakthrough Allowance, I suggest switching from a weekly or biweekly allowance payment to a monthly arrangement. Receiving chunks of money is more akin to what happens in the real world. This practice will let her experience that start-of-the-month feeling of being flush with cash (like her “paycheck” just cleared). If she blows her “windfall” early in the month, then let her feel the pain. As hard as this endeavor might be, she needs to learn this life lesson. Let her struggle to manage her money better. Don’t bail her out.
You have flexibility in making the leap from the basic one-dollar-per-week-per-age-of-your-child allowance to the new Breakthrough Allowance. And if you’re worried that going “all in” with the four categories is too much for your particular child, then start with one area—gifts, for instance. Or if you feel comfortable that she’s ready to make the breakthrough and tackle more responsibility, then pile on the challenge. Here’s an example of the simple spreadsheet I created with our oldest daughter when we negotiated her Breakthrough Allowance to be $125 per month. (See theartofallowance.com .)
Be prepared—and proud—when the spreadsheet becomes a negotiation. She will be feeling more money-empowered than when you started her on this money-smart journey. You want her to negotiate the best possible deal for herself—another great life skill for her to learn.
Our daughter originally came to us with an allocation of $25 for each birthday present. We felt that amount was too high, and we ended up at what we believed was a more reasonable $20 per present. When the final monthly amount came to $124, she “rounded” that number to the nearest five and asked for $125 a month “for fairness.” Maybe I’m a sucker, but her creative thinking for an extra twelve bucks per year worked on me. (Hmm…I sense a theme.) I really don’t know what she meant by “fairness” here, but her reasoning made me chuckle. She was probably still trying to make up for her perceived post-negotiation gift deficit.
As you did with the starter allowance, you’ll want to set up a periodic review of the Breakthrough Allowance on an annual or biannual basis.
You can download your own Breakthrough Allowance Google Sheet from our resources page to get started today. Additionally, if you want to learn more, then you can check out these blog posts and, of course, The Art of Allowance.
*Lieber, Ron. The Opposite of Spoiled: Raising Kids Who Are Grounded, Generous, and Smart About Money (New York: Harper Collins, 2015), 155-57.
Here are some of the topics we cover:
- However consistent you are as a parent, your children will likely display very different money behaviors.
- What to do if your kid saves too much
- The digital version of the three-jar system
- The use of an auto debit in order to teach children about bill paying in the real world
- It’s ok to loan your kids money as long as you expect to be paid back.
- Why the mantra “Let them be kids.” is a bad excuse not to teach your children about money
- The Family 401k
- Investing and the importance of repetition
- Why to start a Roth IRA when your children start working
- Automation to make the plan stick
- The importance of purpose-driven buckets — like jars or “digital” jars on FamZoo
- When to transition from jars to a digital allowance
- Why Bill likes to call an allowance a budget
- Why allowance surveys are useless
- The “chore fail” chart for teens
- Bill’s favorite kids and money books:
- The Opposite of Spoiled: Raising Kids Who Are Grounded, Generous, and Smart About Money
- The First National Bank of Dad: The Best Way to Teach Kids About Money
- Smart Money, Smart Kids: Raising the Next Generation to Win with Money
- A bonus favorite book — Tuesdays with Morrie
“Everything we tried never seemed to work…As they got older, we tried to really tie it to more chores. But then what would happen was they would do some of the chores, and they wouldn’t do other chores…Every week it was a struggle. A battle.” This frustration is what Sondi Sepanuk shares in the first episode of The Art of Allowance podcast .
Her struggle is real. And one shared by many. My post “Why Your Kids Do Need an Allowance and Why Most Allowance Programs Don’t Work” addresses the core problem at the heart of allowance failures.
I thought offering a few simple tips for setting up an allowance that you can implement immediately would be useful.
Use THREE jars (or envelopes or conch shells). Conch shells? I do think that using three jars is the best approach, but whatever you do—yes, conch shells would work—give your child “buckets” so that she gets used to making money choices. Like I explain at the end of this excerpt from my first book for parents, The Art of Allowance , just don’t do nothing:
Okay, your jars are set up. You and your daughter have labeled them Share, Save and Spend Smart. Now what?
We all worry that she may run amok, spending money like a Kardashian. Don’t let your worries turn into what I call “Spendthrift Syndrome,” where you dole out a pittance because you don’t trust her with money. Remember that the consequence of an empty jar may be a more powerful lesson than anything you say to her. The dilemma here is that in order to establish trust, you have to trust her with a meaningful allowance. Recognize Spendthrift Syndrome before it’s too late, or you may hear something like this: “Yeah, Dad, thanks for my 75-cent allowance. I’ll be able to get that Razor scooter I want in a few decades. Awesome.”
This statement is not that far from reality. I know parents of means who were giving their seven-year-old 75 cents. He’ll need seven months to save for the next volume of Captain Underpants! Remember, the purpose of an allowance is to teach your child to be responsible with his money. Be careful not to under-empower him.
The Art of Allowance means you have leeway to construct your own system—to distribute an amount that works for your family. It also means that you need to empower him fully with meaningful amounts. Otherwise, your program will be in jeopardy of failing before it starts.
Virtually every youth money expert agrees that a good starting point for an allowance is one dollar per the child’s age per week. So, a five-year-old would receive five bucks per week. Pretty simple—nine bucks per week for your nine-year-old.
Of course, if your financial situation doesn’t allow you to use this guideline, then adjusting your allowance rate is sensible. Just don’t err on the side of doing nothing.
Start the conversation sooner rather than later.
Be EXPLICIT about your purpose. The reason I advocate for clear jars over conch shells is because they emphasize the transparency that we want to bring to our discussions with our kids. We also want to explain to them that they are receiving an allowance to learn to become responsible with money and to discover the three core money-smart skills of distinguishing between needs and wants, making smart money choices and saving for goals:
Some individuals argue that an allowance not tied to chores is akin to an entitlement.* That belief assumes accountability only comes from working for money. Of course, just giving him some money and calling it an allowance is an entitlement. Granting him a purposeful allowance with a plan as described here is not a handout.
Set a SMART goal as soon as possible. Saving for goals is one of the core money-smart skills you should teach your child as early as possible. Here’s how I explain getting started in The Art of Allowance :
Goals are powerful life lessons for your child. The ability to save for a goal is not only a core money-smart skill but also an essential life skill for your child to learn.
From a practical standpoint, keep your goal-setting simple. A five-year-old’s attention span is short. A child’s ability to visualize exists, but it’s limited. Find a simple goal, like a scooter, that might take four to eight weeks of saving. Delaying gratification is okay, but not by so much that your child’s eyes glaze over. Speaking of that scooter goal, our older daughter still rides around on the Razor scooter she bought when she was six.
Goals should be SMART: Specific, Measurable, Achievable, Relevant and Time-based.** Help her decide on something she wants that is reasonably priced (specific and relevant). Identify how much your little saver intends to contribute each week (time-based) and how many weeks saving for the goal will take her (measurable and achievable).
And a BONUS tip… Start early! Here’s one reason why:
You may be familiar with the term “emergent literacy,” the concept that children are in the process of learning to read and write by absorbing knowledge when they are in early childhood, babies even.*** This notion is the reason many of us read to our children before they can walk.
It’s helpful to consider teaching money smarts and wariness of stuff to young kids as “early childhood financial literacy,” a term coined by David Godsted and Martha McCormick.**** Young children assimilate the ever-present messages about consumption and can readily absorb communications that counter the American creed to “consume more.” By not introducing the concepts and language of money—sharing, saving and spending smart—to our children at a young age, we do as much of a disservice to them as if we did not expose them early to books and writing.
Good luck on your money-smart journey.
*Kadlec, Dan. “Why Giving Your Kids an Allowance May Not Teach Them Anything.” TIME , February 15, 2012, http://business.time.com/2012/02/15/why-giving-your-kids-an-allowance-might- not-be-teaching-them-anything/.
**Lawlor, K. Blaine and Martin J. Hornyak. “Smart Goals: How the Application of Smart Goals Can Contribute to Achievement of Student Learning Outcomes.” Developments in Business Simulation and Experiential Learning 39 (2012): 259-67.
***McCormick, Martha H. and David Godsted. “Learning Your Monetary ABCs: The Link between Emergent Literacy and Early Childhood Financial Literacy.” Networks Financial Institute at Indiana University, NFI Report , 2006: 3.
****McCormick, Martha H. and David Godsted. “Learning Your Monetary ABCs: The Link between Emergent Literacy and Early Childhood Financial Literacy.” Networks Financial Institute at Indiana University, NFI Report , 2006: 8.