Saturday, September 24, 2016

Fix The Way You're Doing Your Kid’s Allowance

A tuned racing car engine.

Do cars hurt people?

No, drivers do.(Defects and self-driving glitches aside.)

Does allowance spoil kids?

No, parents do. Allowances are just the misused vehicle of choice.

Used correctly, allowances don’t spoil. They teach kids to be responsible and thoughtful with money.

If you’re seeing otherwise, your allowance approach needs a tune-up.

A well-tuned allowance:

  1. Tracks a budget. Why guess at the right amount? Sit down with your kid. List the things the allowance should cover. Put it in concrete terms. Calculate the right amount accordingly. Little knick-knacks for youngsters? Set the allowance to the price of a favorite regular treat plus a smallish fraction of a modest toy purchase — enough to require plenty of patient saving to close the deal. Clothing for a teen? Put your teen in charge of a budget proposal for the season or year. Review and revise to negotiate the final amount. Consider using the premium price rule: allowance covers the bargain price. Anything above is on your teen.
  2. Forces trade-offs. When is an allowance too much? When you don’t see your child agonizing over tough financial choices. As Oprah says, “You can have it all, just not all at once.”
  3. Allows mistakes. Aside from a few obvious ground rules (no beer or cigarettes!), let your kids make the purchase decisions. A bad purchase is a learning opportunity. My now twenty-something daughter still remembers torching her annual clothing budget on that Neiman Marcus chiffon gown for high school prom. Total times worn: one. Pro tip: make kids submit written proposals for questionable purchases.
  4. Enforces consequences. Going cold turkey on clothing for the remainder of the school year is what made my daughter’s gown decision so memorable. A bail-out from mom and dad would have erased the memory. (A formal loan might be an acceptable alternative though.) A budget-based allowance is an up-front agreement. Stick to it.
  5. Prompts ongoing discussion. There’s a middle ground between dictatorial and laissez-faire allowance policies. Your kids need and deserve your experienced counsel. Discuss, just don’t dictate.
  6. Saves you money. Yes, you read that right. A well crafted allowance plan doesn’t create extra spending. It pays for things you would have purchased anyway. Even better, it constrains spending. It transforms ad hoc, emotional spending on kids into controlled, mindful spending by kids. That’s a recipe for saving. And learning.

If your allowance policy is spoiling your kid, don’t junk it. Just tune it up.

Want to turn these tips into action? Check out

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