Thursday, May 07, 2009

The Road to Financial Independence

Melanie at The Wine-Dark Sea has written a post on money and rewarding obedience, which reminded me that I have intended for a while to write about how we handle pocket money and allowances.

While there are some good arguments for linking children's allowances to chores, particularly the idea of teaching them that money needs to be earned, we opted not to go down that route. We had two reasons: firstly, we felt that helping around the house is simply part of being a family; secondly, because as the girls get older they get an allowance to buy things we would otherwise expect to buy for them. We do occasionally pay them for specific chores as a way of helping them get extra money if they are saving for something, and Angel now gets a small amount for babysitting, but the bulk of their money comes without strings attached.

Our main aim has been to help the girls learn to the skills they will need to handle their own finances well as adults. We try to teach them to manage money by gradually increasing their financial responsibilities. To start with, they get a small amount of pocket money - purely fun money, that they can spend on whatever they want. Our rule of thumb has been ten pence for each year of age, starting when they were four. The trigger for first giving Angel pocket money was the attraction of slot machines for bubble gum and junky trinkets outside the leisure centre where I took her for swimming lessons. The first few weeks she had pocket money, it all went into those machines. Then the novelty wore off and I never had to deal with hopeful pleading for twenty pence pieces again.

When Angel turned eleven, we started giving her an allowance of twenty pounds a month and specific responsibilities. We opened a bank account for her which provides a cash card from age eleven and a debit card from thirteen, and paid her allowance by direct debit into her account. Lots of financial lessons there - how to operate an ATM, how to pay cash into an account, direct debits and standing orders, reading bank statements, interest (what were those extra pennies going into her account?), and keeping track of balances. Out of her allowance Angel had to buy her own clothes and fund her mobile phone (we do phones early, but only on a pay-as-you-go basis).

At thirteen Angel's allowance increased to thirty pounds a month, but she now has to pay for her own social life and incidental expenses ... say she wants to take the train to the next town and go ice skating or to the cinema with friends, she pays; or if she wants to grab lunch while she is out, she pays. At fourteen, she got another small rise in her allowance, which now includes five pounds in return for babysitting for one evening during the month so that Tevye and I can go out. If she wants more money in future, it will have to be earned - she has just started helping out at her gym, and is planning on doing coaching qualifications so that she can get some paid work there. Having her own allowance has worked out beautifully. Angel takes her responsibilities seriously, budgets her money carefully, and enjoys the sense of independence it gives her.

We are planning to take exactly the same approach with the other two girls. One small tweak we have made with Star is that we switched her pocket money from weekly to monthly at ten, so she currently gets five pounds a month rather than the pound a week we gave Angel. She is very much looking forward to August when she will get her own bank account and allowance. Angel prefers dealing with cash and has opted not to use her debit card. Star, on the other hand, wants an account with a different bank as she is keen to get a debit card when she is eleven and this bank will provide one. It is going to be interesting to see how she handles her money, as she is a very different character to Angel.

1 comment:

Melanie B said...

Thank you for sharing this. We've been back and forth on the issue of allowance vs being paid for chores. There seem to be merits in both positions: learning that money needs to be earned and learning that chores are expected as a matter of course from all family members. I think I lean a bit more toward your system of expecting chores with no reimbursement and giving an allowance but allowing some paid chores that are over and above the expected.

My parents did both in a haphazard fashion and were not terribly consistent. It's rather fuzzy exactly how it worked, now that I try to reconstruct it. What I remember most for longest was a checkbook, not held by a bank but by my mom, in which we logged the money we'd earned by doing chores. When we wanted to make a purchase we "withdrew" the money and entered in the amount. However, doing chores was not optional but required which did cause frequent battles as my mom was not all that good at enforcing them. Some weeks she was more on top of things than others and I think that was a huge part of the problem.

I like your system of actually opening a bank account and having a debit card and making deposits and withdrawals.

So I guess you plan to start giving Cherub some pocket money when she is four?

I've been thinking more about the idea I posted on and while I like it very much, I'm hesitant to actually implement it as yet. Right now Bella is so very helpful and obedient with only verbal praise as a reward. I'm reluctant to begin giving her a coin in place of praise when praise is sufficient. She's not all that interested in money except she occasionally carries around coins she finds on the floor or the desk. On Sundays she drops our envelope into the collection basket and does enjoy that task.

I love seeing how other families handle these questions as I'm still trying to decide what will work best for us.