Our oldest daughter is ten years old.
She gets a weekly allowance for doing specific chores around the house as well as for helping out in general.
Payday for her allowance is Sunday.
Want to teach a child how to remember a day? Have them remember their allowance pay date! Not a week goes by that our daughter doesn’t remind us on Sunday that it’s pay day.
I’m not complaining, mind you. I think it’s pretty cool that she remembers and keeps track.
Anyway, we give her the allowance in cash. Over time she has built up a tidy little sum, adding to it the occasional birthday or holiday money she has received. The money is hers to do with as she wants, though we help guide her and advise her in her spending.
She’s really quite good with her money.
Her savings have never gone to zero and most times her allowance goes right into her savings. She’ll occasionally take some out for a school trip or if she’s going to visit a friend (like may $20, and she comes back with change). On top of that, she’s generous with her money. If she goes out she’ll think of her little brother and pick something up for him. Cool stuff.
A while back we set up an ING Direct savings sub-account for on our account (now 360 Savings). This money was mostly birthday and holiday gifts that we put away for her (checks usually). We always show her what’s in there and make sure she knows about her money. When I show her the account I tell her about the extra little amounts that are added as interest every month and try to explain to her what compounding is. I let her know that when she puts money into the bank, the money earns interest and is added to her account. She seems to understand but isn’t that impressed. Perhaps it’s because interest rates have been low for a while.
A couple of weeks ago it was time to give the little princess her allowance (which she reminded me, of course).
When she put the money with her savings I saw that she had quite bankroll for a ten-year-old! Being the personal finance guy I try to be, I explained to her that she had a good amount of money if she ever needed some spending money and that a bank would be a safer place to put any more. I also reminded her of compounding again.
She was a little concerned about being able to get the money out if she ever wanted it. I explained to her that I could always get it from an ATM (I have an ING Electric Orange checking account (now 360 Checking)so I can always transfer savings over to take out). Some thing clicked this time because she told me I should put her allowance right into her savings account!
I opened up ING and showed her the money I was transferring and then showed her the new account balance. She was happy to see it growing. See, she wants to save up to buy her own computer. Seems dad is always online doing computer stuff (can’t imagine what that would be ).
Pretty cool goal for a ten-year-old, huh?
So now instead of giving her cash for an allowance we transfer the money into her account (sub-account really). I always show her the new balance so she knows it’s there.
We’re pretty proud of how well she handles money!
How do you handle your child’s allowance?
P.S. Another option besides a sub-account is to open up a Kids Savings Account with Capital One which is an account for the child that you have control of while she’s young.