We Don’t Buy Our Kids Toys
Birthdays and Christmas are the exception, but in general, we don’t buy our children anything except clothes and shoes. If we walk through the mall and they want a pretzel or ice cream and it’s not a family treat, they pay for it. If they want candy from the check-out line or a ball from the little coin machine at the grocery store, they pay for it. They don’t even ask anymore because my response is always, “do you have enough money?” If they want Pokémon cards or a new iTunes song or App, they need to have the money to pay for it. It’s a win-win. They learn how to be responsible with money and I don’t have to battle wills.
The Allowance Solution
Our children earn an allowance starting at age 4-5. Every Friday, they receive $1/year (9-year old receives $9, 7-year old receives $7 …). This may seem like a lot, but if you add up the items you’ve purchased for your child over the last few months, you’ll likely see a savings. The allowance isn’t tied to any specific task and is not taken away for behavior or responsibility. They are required to participate in household chores such as folding laundry, helping with younger siblings, setting and clearing the table, emptying the dishwasher, etc. We don’t pay for chores because we want them to learn that being a member of the household comes with it’s own set of responsibilities that aren’t rewarded – they are just expected. We also have a sticker chart for “extras” but that’s a story for another post.
How To Do It
As they get older, we change the rules a little bit, adding complexities that will help them develop the skills to manage money effectively. Here’s how to do it:
- Age 4-5: Once the child can count to 100, understands what money is for and can identify coins and bills, start giving them $1/year of age, every week. When making purchases, parent pays tax for child. Example: if an item is $4.99 and the child has $5 allowance, help the child purchase the item and pay the tax. Teach the child to “round up.” As they get closer to 6, start discussing tax and what is for (to help pay for roads, bridges, schools …). Let them know you are paying for it now, but soon they will have to pay for it. Start working on helping them understand percents.
- Age 6-7: As soon as the child understands the purpose of tax, has mastered “rounding up” and can add percentages by 10 (10% of $1 is 10 cents), begin having them pay sales tax. When they choose an item, guide them to “round up” ($4.99 rounds to $5) and then add 10% for tax ($5.50). When they can understand they will need to have at least $5.50 for an item that costs $4.99, they can make choices about how they will be able to spend their money.
- Age 8-12: By now, your child has mastered sales tax, can probably estimate pretty closely the actual final cost of an item and even looks ahead to forecast future purchases by budgeting the number of weeks he’ll need to save to make bigger purchases. It’s time to throw another curve ball at them and begin having them start a savings account. Have them calculate 25% of their allowance and subtract it from the total they receive each week. They can save the money in a jar until you are ready to take them to the bank (once a month or so) to deposit their savings into their own accounts. Most banks offer free savings accounts for children linked to yours and will even give them a little book to track their savings.
We’ve had this system in place for 5 years and it has worked brilliantly. The kids save for what they want and they don’t ask us to buy them anything. They even saved for over 30 weeks to buy themselves Nintendo 3DS’s because they didn’t want to wait until Christmas. It’s one of the best things we’ve done for our kids (and ourselves) and it really works!