Teaching Allowance to Young Children

By Dion Woods

Children don’t arrive in this world with instructions attached. However, after a few days, parents quickly find that children do come with price tags and that price is never the same for any two children. The length of time we’ll be paying for their needs is often tied to how we train them to be financially independent.

The longer we delay the process of teaching financial stewardship, the longer we’ll pay for our procrastination. A study conducted by Ameriprise Financial found that between 2000 and 2004, the number of US households with children age 18 and above still living with their parents had skyrocketed almost 70 percent.

It appears that these ‘children’ didn’t have the financial means, the drive or the knowledge to separate from the comforts of free room and board. It’s a circumstance that’s not only draining on parental resources and confining to parental lifestyle, but also permits the ‘children’ to get stuck in an unhealthy dependency.

Begin early with teaching children how to value and use money. More specifically, their money– an incredibly important distinction. As parents spending endlessly on our offspring’s needs, we often think of that money flying away, or slipping through our fingers. The critical thing is to determine whose money is vanishing! Young children have an instinctive impulse — to spend our money and save theirs — so it’s important to start the process of changing this behavior as soon as is practical. This is one of the essential roles an allowance system should play — to let children practice using their money while encouraging them to relinquish use of ours.

Our home’s experience is somewhat unique because the 3Piggies® Savings System began there and our children are being taught about money through the fundamental principles of building, giving and spending. The day we instituted the 3Piggies® Savings System with our children, then ages five and seven, we started giving them an allowance and told them that we had some good news and some bad news for them. The good news was that they could buy anything they wanted as long as it satisfied our value system. They were elated. The bad news — we would no longer pay for the things they wanted; they would have to purchase them with their own money.

Of course, there are times when we just want to give our children what they desire. But instead of feeling pressured to give in to their demands, in most instances, we encouraged them to save their own money for their desires (e.g. video cartridges, toys, etc.) Obviously, they were less than excited with this news. But the moment we implemented the system, we realized that we no longer had to say “no” to their endless requests for items in the store. The answer to all of their “Mommy can I have this” and “Daddy can I have that” questions was ‘Yes!’ Anything was possible. All they needed was enough of their own money to buy what they wanted. Eventually, their requests stopped flooding in. Now their response to cool items was “I’m going to buy that” instead of “Can you buy me that?”

On a recent trip to Disney, each of our children brought $60 from the money they had saved. When we went into the stores at the Park, it was wonderful. We didn’t get a single request. They knew the rules, or should I say they knew the possibilities. Instead of whining for the stuffed action figures near the register, our kids carefully read price tags and assessed if what they wanted was really worth the cost. Couldn’t we all stand to improve our skills in this area? In the end, our children decided to skip the expensive novelties and save for something better.

So the strategy is to ‘cut off’ your wallet, or at least restrict your children’s access to it. Once you implement an allowance system, tell your child that they can get anything they want (within your family’s value system) as long as they use their money. When you go to the grocery store, you’ll find liberty in saying yes to almost all their requests. They just have to pay for it. Not only will you take yourself off the hook for being the heavy, but you put the responsibility for the purchase back were it belongs—with the child.

An additional benefit of this strategy is that your child will learn the value of delayed gratification. Since people who shop on impulse typically spend 20-30% more for their purchases, your child will be light years ahead of most adults when they’ve learned to plan for what they purchase.

The funny thing is, we never intended for our allowance system to focus on delayed gratification. Yet, as our children evaluated their wants against their resources, they came to the logical conclusion that more time was needed to get what they really wanted. Somehow, they seemed to accept that outcome. And as long as no one signs them up for a credit card before the age of twelve, we’ll be fine.

For more information about the 3Piggie$® Savings System, visit our web site at www.3piggies.com.

Notice: This article is the intellectual property of Next Level Concepts, Ltd. and no use in part or whole in any media is permitted without the express written agreement of the author.

All Rights Reserved: Dion Woods 2006.


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