I've decided to increase my 5 year old's allowance but I'd like to have him save 40%, spend 40% and give the remaining 20% to charity. But I have a couple of questions:
1) do you think that's a good breakdown of how the money should be allocated?
2) what happens to the 40% they save vs the 40% they spend? can they literally not touch their savings until they're 18?
Thanks!
UPDATE: I'm planning on using threejars.com which is a free online banking type site for 5-13 year olds. So it'll do the math for him.
We did 30/30/30/10 - 30% spend now, 30% short term savings (saving up for something big like a Lego set or whatever), 30% long term (college, buy a car, etc.), and 10% charity. We opened a child's bank account for the 30% long term savings, and had a divided bank for the rest. You will probably want to make the allowance something easily divisible by 10 - this is a lot of math for a 5 year old!
We never got an allowance growing up and our son doesn't get one either.
It merely teaches how to spend spend spend before they have ANY concept of how difficult the money is to earn.
Doing chores and helping around the house is something you just do and no one pays you to clean your own toilet - using a clean toilet is your reward.
I can think of a dozen people who live paycheck to paycheck and can't manage saving in spite of all the 'money skills' an allowance was suppose to teach them.
I'm aware of what the 'experts' say/recommend but It just doesn't work and I don't buy the hype.
In the worst case, the allowance becomes an expected entitled handout regardless of attitude/behavior/chores/grades.
I can think of a few others who had to work very hard for what ever cash they earned (paper routes, mowing lawns, raking leaves, shoveling snow for neighbors, etc) and they learned to pinch a penny till it bleeds.
I have kids the same age. To me the important thing right now is they learn delayed gratification. Thus saving is really a long term spending. So My kids are saving for spending money when we go to Disney. Your kid might want to save for an ipad. IMO 5 is too young to learn delayed gratification for a 10 year goal. When mine are old enough to make money from odd jobs then we will enact car savings IE they car you get is based on the money you save and mom and dad will match every dollar you save.
My kids right now are 16% save, 16% charity (because it works out to $1 each of those categories - keeping it simple), the rest spend. They need to taste the fruits of the labor. Well my kids do anyways as they have to do extra chores or "work" to earn money.
We did something similar. In our case the long term savings went to pay for their first car. (We match whatever they save). No, can't touch the money. It's in their name at the bank.
Whatever works best for your family is the best breakdown :-)
We do 10% tithe, 10 % savings (long-term) & then they can do whatever they want with the rest. For our family tithe is rather important & if they choose to give any more to church or to another charitable organization they are more than welcome to do so. They often give to organizations or fund raisers that are important to them & the Salvation Army kettle bells get a ton of their money in December!
As far as the savings goes for us it works like this: They have to have an "emergency fund" of $50 (they are still pretty young, this will increase as they get older) and then the savings is for big ticket items & must have parental approval before being spent. Big ticket items such as computer, special (not the generic version) equipment for activities or events, and later a car. We are hoping the emergency fund idea will settle in & stay with them into adulthood.
Finally, with their spending money. They can do pretty much whatever they want with it but Dad & I still have ultimate veto power. If they choose to spend it all as soon as they have it & we are at the store then that's OK - annoying but ok. If they want to save some for a special toy or something that they want that is OK too. We discourage spending it on snacks as all they have to do is ask & I'll pick up snacks at the grocery.
Anyway, that's how we do it. Have a great day!
When I was a kid 1/2 of my allowance went into a bank savings account. I couldn't touch it. It gave me a pretty healthy spending account for my social life my first year of college. Lots of my friends thought I was "rich".
In response to RA B's comment about delayed gratification, I just read an article about the correlation between the ability to delay gratification and having a happy life. Those who were unable or unwilling to delay gratification had a less happy life. So delayed gratification is a very worthy goal.
i think your plan is great! and yes, put that 40% aside for college. if they choose not to do college, it's there for them to start their entrepreneurial adventure or help fund a grand tour through europe or whatever it is they decide to do.
:) khairete
S.
Why not give your child a couple of dollars to spend on anything he wants and then start a savings account for him? Let him help you make charitable donations when you make them. That way he can have a couple of dollars to spend and not have to sit down and do math and think about all that other stuff.
He's 5. Not really old enough to understand he got $5 and only gets to spend $2.
I do think you have good intentions but he's rather young for all that.
His allowance is money he can burn in the fireplace, spend on bubble gum, buy Hot Wheels, give away, and you don't get to ask him what he bought with it and you can't say no to anything he wants because "you should have spent your allowance on that".
Allowance is money that he doesn't have to be accountable to anyone for. So at this age it should be small but big enough he can buy a candy bar or something small. A gift of money. Not something he should be accountable for in any way.
