I thought 3 years old was too young to learn about money, but experts convinced me to give my son an allowance
- Kids develop habits around money early, so we give our 3-year-old an allowance of $3 a week.
- We choose not to tie his allowance to chores to avoid turning chores into an optional thing.
When I started reading books by authors such as Clifton Corbin, Beth Kobliner, Doug Nordman, and Ron Lieber about how to teach kids money concepts, I was shocked by how early they recommended starting. All of them pointed out how money habits are formed by around the age of 7 to 9 and recommended introducing an allowance system as a way to encourage your child to practice with money.
Allowances can be a controversial topic with adults. Many are supporters and give an allowance at home, but the most common argument against an allowance I hear is that it will create entitled children who expect handouts and won't ever learn the value of earning money.
To me, an allowance gives my 3-year-old son the chance to practice handling money and make his own decisions about how to use it. This guided practice allows him to make choices, make lots of mistakes with small amounts of amount, and learn important lessons that most of us didn't experience until we were adults.
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How we handle an allowance
Allowances usually take one of three forms.
- They can be tied to chores around the house. If the job list is completed, the child earns their weekly payment.
- They can be paid regardless of behavior or performance of chores.
- Finally, you can take a hybrid approach where a base allowance is paid without being tied to work, but there are also jobs with monetary rewards attached to allow kids to earn more.
For us, the allowance is not tied to chores or behavior. Every Sunday, he receives $3 (equal to his age) and he can choose to spend it right away, or save it for a short-term future goal in his Benji Bank. The reason we don't tie it to chores is we want him to complete those without needing to be rewarded for it. As adults, we don't get paid for maintaining a house, and we want our son to learn that helping out is what is expected and part of being a member of a household.
How we ensure he learns about money
Money alone does not make a financial education. We've signed up for courses and guides on teaching kids financial literacy where we learned about how to guide our son through managing his allowance without dictating it. Each week, when he gets his $3, we present him with options. Currently, the options are spend it now on cheap items such as toy cars or save for something bigger that he really wants.
We purposefully walk past toys in the store, stop to look at them, and ask him if he'd like to save up for it. When he says yes, we go home and make a savings chart with a drawing of the item and a number of circles equal to the price. When he saves his money towards that goal, he stamps the sheet to visually show his progress and moves his token up on our Family Money Ladder.
As soon as he has the money to buy the item, we ask if he still wants to buy it. If so, we immediately go to the store to get it. Once done, we celebrate the victory of patiently saving his money to get something that he really wanted. Later we check in to ask him how he feels about his purchase and remind him of how great it was to save up for something he really wanted. The goal is to make saving money positive and fun.
How we're planning for success
In a month or so we will introduce the option to give his money as well as spend or save. Nothing will be forced, but we'll offer options for how he could give money and see if he'd like to allocate some of his money to giving while still pursuing his saving goal. We also currently use $1 bills for his allowance to make counting easy, but once he turns 4 we plan to introduce 4 quarters for the fourth dollar to encourage dividing in different ways.
We use cash, which means going to the bank to get a large amount out in $1 bills. That way we're not missing allowance days or stressing about finding cash. We're also being consistent and making sure we pay his allowance weekly. I've learned that children who are forced to save or give their money away may resent it and could hide money in the future to protect it from being "confiscated."
I'm also letting my son make mistakes. I may know a decision is bad, but I offer him options and support his choice. I try to be there to ask follow-up questions to see if he can come to his own conclusions about the wisdom of his choice.
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