formulating an allowance plan for our almost four year old

May 29th, 2008

Formulating An Allowance Plan For Our Almost Four-Year-Old

Our son is turning four at the end of June, and my spouse and I decided that four was when we would start introducing an allowance to him. And just in time, since he’s just started to understand the concept of money and that it can buy things. We’ve been discussing how we want to introduce the concept of saving, both short term and long term, as well as giving, and we have finally come up with a plan. This is our first child, and we’re new to the whole allowance thing, so we may find it doesn’t work at all, but we’ve at least decided what we want to try.

We are starting with the four “classic” categories we’ve seen a dozen other places – spend, save, invest, and give. But we’ve renamed them to four year old terms (or at least, our four year old) – Now, Later, Grown-Up, and Others. Now is for immediate spending money, while Later is for things he wants to save for long term (he can’t just spend it randomly, he has to have a plan for using it). Grown-Up is the invest one, which will be for when he’s grown up (ie retired, but we’ll cross that bridge later), and Others is for giving to others who need it. We are going to use 4 plastic peanut butter containers, one for each category, as long as they clean out well in the dishwasher (I might have to find other containers, but they will be clear plastic ones with lids if I do).

We’re only giving him $1 a week. In quarters. Some might think that’s not enough – and it may not be (we may raise it sooner rather than later) but we’re pairing it with a “matching” program to encourage using more categories than just “Now”. So he is able to collect more than $1 a week from us, depending on how he chooses to distribute his money. When he puts money in the Now container, he doesn’t get matching money from us. But when he chooses to put money in Later or Others, he will get one extra quarter from us put into that jar for every quarter he puts into it. And when he puts quarters in the Grown-Up jar, we will put two quarters in for every quarter he puts into it. That jar will also be taken to the bank, by him (with us of course), every so often to deposit in his very own savings account. How often, I’m not sure. We’ll figure it out as we go along. I am also not sure how often we’ll have him decide what to do with the Others jar. I am hoping he will see his own opportunities but we will also start encouraging him to think about charitable gifts with exposing him to our choices and other situations where he can help others.

So that’s the allowance plan, for our four year old at least. Four jars, four categories, four quarters a week (with the opportunity to double or triple that money depending on the choices he makes with how to use the quarters). I have no idea how it will go, but we’ll be rolling it out at the end of June and I’m sure I’ll be updating as time passes. I am hopeful that it will be effective, but time will tell.

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27 Responses to “Formulating An Allowance Plan For Our Almost Four-Year-Old”

  1. sounds like a good idea! we’re starting when my daughter turns 4 also. I haven’t worked out all the details yet but I like your plan.

  2. Would he enjoy putting money into collection boxes? Or maybe doing something like the toys for tots thing later in the year.

  3. What great ideas! I can’t wait to hear more about how it plays out… How did you decide whether 4 was the right age to start this?

  4. I have an allowance story…my 19 year old decided, when she was 10, to save for her first car. Every year,she put all birthday and Christmas money in the bank, as well as most of her weekly allowance. When she got her first part time job at 16, she put her earnings in the bank. At 18, she bought a used Honda Accord completely with her own savings and still had quite a good amount left for her spending money while she is studying abroad this summer. She also pays for her own car insurance!

    Kudos to you for starting your son on a savings plan in childhood!

  5. i think it sounds like an excellent, well-thought out plan. it might be a little confusing for the kid, though, so i think maybe simple labels on the jars would help. like, “now,” gets one quarter on it. later and others get one quarter, a big plus sign, and another quarter. and grown-up gets one quarter, a big plus sign, and two more quarters. something like that so it’s very easy for all of you to remember! plus, umm, stock up on quarters – if that kid’s like me, it’s all going in grown-up and you’re gonna have to get a few laundry-loads’ worth! don’t worry, he’ll become a spender later in life (i mean, if my own weird pattern holds…). but then you can teach him about debt-reduction! cripes.

    kudos to you for helping him get a really great, solid foundation of fiscal smarts!

  6. Sounds like a good plan but what about using dimes instead? That way he could break the money down a bit more realistically. For example, many people settle on donating 10% of their income. Rarely do people give 25%, or save 25%, or spend only 25% of their income. I don’t know if using dimes would create too many choices, but it would give more flexibility, and perhaps a tiny bit more of a realistic picture. He could put one dime in the “others”, one or two into “later”, one into “grownup” and have 6 or 7 left over for “now”. If his “now” amount is one quarter, does he have many opportunities to buy something “now” with only twenty-five cents? What can a kid buy nowadays for one quarter? Bubble gum machine purchase? If he had 60 or 70 cents, maybe his chances of buying something “now” would increase a bit.

  7. @GBlogger – He’s starting to be aware that money buys things, so we decided it was time to start teaching him about having his own money :)

    @ ldub – I will think on the labels, thanks!

    @ Mrs. A – dimes are an idea too. I was trying to keep things simple and don’t expect him to make the same choices every week. A quarter buys nothing :) But I won’t take him places to buy things every week, either. We don;t get out much lol. :)

  8. You can also give him reward to teach him behaviorally. Here’s an example. If he puts it in the later jar, you can give him a matching fund so that he see there’s a benefit for putting money in that jar (for a period of time).

  9. I think this is a great way to do allowance! I’m going to forward this post to my sister, because yesterday was my niece’s 4th birthday!

  10. Wow $1 a week, that is pretty rough for a kid. Since he has to split it up four ways it will be month and a week before he can buy anything. I think he should get about $5 per week, $1 for every jar plus change to handle tax. That way he can go to the dollar store and at least buy one item. He probably won’t take much interest to it if you only give him .25 to spend every week(immediately).

  11. My oldest will be 4 in June too! She has a piggy back that all of the change she finds goes into. I had not thought about starting this, but it is a good idea. We also have a 2 ear old, and generally, when one does something, they both do. We might wait until oldest is 5 and youngest is 3 for this. But great ideas!!

    I think for us, we are trying to teach our child to put others first – love you neighbor as yourself, so we might emphasize the others jar more than the later and swap the values for those. Who knows.

    If you bank with USAA (a long shot) and you open a kid’s savings, they may send you a piggy bank with is divided into fourths, which is very cool. We got one after we opened savings for our kids. They may not still do this, but it is worth calling them and asking. They are an excellent bank – the best we have ever worked with – their customer service is top notch and their rates are pretty good too! But anyways, you might think about looking for these!

  12. This was an informative post. I’m nowhere close to having kids, but I sometimes ponder what the best ways to teach my future kids about money are. Personally, I had always just heard of three categories: spend, save, charity; with 10% going to save and charity with the remaining 80% in spend. For me (and I’m not 4), this simplifies things since spending money is now in just one category instead of 2. Also, your “later” vs. “grown-up” categories can be a little confusing. Though I am a huge fan of starting retirement savings early, 4 might be just a little too soon. Realistically, your kid will need long-term savings first to help with college, buy a car, make a down payment on a house, etc. before retirement. I know this is more of a teaching exercise and not so much a retirement account per se, but I would encourage the kid to start thinking about retirement when the kid gets his first job (and has his first earned income). From a teaching perspective, it seems like you would put all the money you allow the kid to spend unilaterally in one pool (combining the “now” and “later” categories). I would think this would better reinforce the idea that you have X number of quarters in “the bank” to spend, and that the fewer you spend today, the more you have to spend on a new bike or something later. Obviously, the 80/10/10 breakdown doesn’t work with quarters, but I agree that quarters work better than dimes. Thanks for sharing.

  13. paidtwice Says:

    May 29th, 2008 at 2:56 pm

    @ Pinyo – I am matching his later money 1 for 1 as well as his give money. The only money I don’t match is the now money. :)

    @ David – I’m not encouraging him to spend money. He doesn’t *have* to split it at all, he can choose to put it wherever he wants. He can put it all in Now every week if he’d like. My goal is not to encourage him to learn to spend – it is to encourage him to understand how money works in that we save some, we spend some, and we give away some. And I do not intend to bring him to places to spend it just to spend it. But when we’re in a store and he wants candy, he can make a choice about if he wants it enough to spend his own money for it or not. We may raise the amount, but he is only turning 4. He has very little he “needs” to spend money on.

    @ Lo Price – honestly one of the biggest ideas I want him to understand is instant gratification vs delayed gratification – therefore for me, the “Now” vs “Later” distinctions are really important.

    @AnnaB – we don’t bank there but that is cool they do that!

  14. Thanks for your blog. It’s a blessing. My daughter just turned 6. We don’t give her an allowance. We do, however, pay her for doing extra things around the house (like not whining at all for a day [ok, she’s never actually achieved that!]) or helping fold clothes [she’s good at towels]). I haven’t kept track (I should) but $1 a week, like you suggest, sounds like a good target. Also, we just do three categories — 1) give 2) save and 3) spend. Now that she’s 6, maybe we’ll split the “spend” category into sub-categories. Of course, the ice cream truck is quickly wiping the category out, so it might be a non-issue. Anyway, that’s what we do, for what it’s worth.

  15. Hi we didn’t give our kids an allowance until they started school. Kindergarten was 50 cents/wk and then a $1 per grade ie 6th grade $6/wk. After the first few months the I wants have pretty much gone away. they know that to buy something they want it either needs to be out of their own money, or ask for it for bday/christmas. This is also working with clothes. my 3rd grader wants special clothes but when she has to pay the difference between old navy/target it usually doesn’t happen.
    We don’t have them split out into different categories yet but for the older child this will happen by 8th grade.
    It sounds like you are on the right track.

  16. This is an adorable idea. I’d like to do something similar when I have kids.

  17. I love that you let him choose how to divide it up. Eventually he will want something that is more than he can accumulate in a week’s time and he’ll need to start putting money in the later jar. I think that’s far more valuable than forcing a kid to save a certain percentage.

  18. Yukonruby Says:

    May 29th, 2008 at 4:19 pm

    I think 1$ is a good amount to start with. We started with my son at 1$ at four as well. He’s can now earn up to 2.50 at six years old. We’ve tied the allowance to chores and behaviour though. He gets 1$ for making sure there are three rolls of toilet paper in each bathroom, 1$ for doing six minutes of wiping of walls, drawer pulls and various handles around the house and $0.50 if he has not had a major punishement this week.

    I like the idea of renaming the categories. Much better than trying to explain the other words.

    Make sure to use a rubber spatula to really empty out the peanut butter jars and they should wash up fine.

  19. Great post and great ideas!

    Have you thought of randomly doubling the money he has in his jars? This could teach him how to handle windfalls. It would also motivate him to hang on to his now money a little longer in hopes of a windfall. This technique is best used sparingly to keep it realistic.

  20. We’re in the ‘twice their age per month’ camp … with a twist: they have to save half of it … until retirement (well, they can blow it when that ‘come of age, we’ll have no control over them by then!)

    As they got older we also told them that they can spend the other half now or later (but, they know they will need to buy their own cars etc.).

    We come from the Warren Buffett and Bill Gates School of Wealth Transferance: they get nothing from us except, love, food, shelter, education (incl. College)!

  21. I’m not a parent, but I like the way Dave Ramsey advocates teaching kids about money: he doesn’t call it an allowance, he calls the money his kids get “commission,” because they have to earn money rather than just being given it on a weekly basis.

    Dave’s premise for this approach is that giving an allowance teaches kids that they’re entitled to have money handed to them, whereas giving them a commission teaches the concept of, “if you work, you get paid; if you don’t work, you don’t get paid.” (And the especially motivating, “work more, get paid more.” !!) Because as a grown up, generally you don’t get paid if you don’t work. :)

    Dave’s approach really resonates with me because it seems like so many kids these days are growing up feeling such a sense of entitlement. I was raised getting an allowance – although I was *supposed to* do chores to earn it – but somehow I had some misguided feeling of entitlement, which is what got me deeply in debt when I went to college.

    If you’re curious, Dave’s got a whole site devoted to teaching kids about money ( as well as a set of tools for visually conveying the principles to kids (here) which includes envelopes and a job board that shows what needs to be done each week to earn commission and extra chores the kid can do to earn more money.

    Anyway, good-on’ya for thinking things through and finding a way that works for your family. So many parents (including mine. Oy.) are so negligent about sharing principles of saving, budgeting, and staying out of debt it’s shameful. Refreshing to see someone who’s consciously choosing to teach her child!

  22. Random lurker speaking up to say: It sounds like a good plan! I hope you have fun with it, and i bet your son is going to enjoy it too. And i’d not worry about it not being enough money – when i was younger, my first allowance was when i was 10 and it was 25p a week (about 30 cents i think, in American money). Much better to start kids on less, i think, so they aren’t overwhelmed and they come to appreciate money rather than take it for granted. Because at this age, we want it to be fun rather than a worry or a difficult decision!

  23. Thanks for participating in this week’s Carnival of Family Life hosted at Live from Waterloo on Monday, June 2, 2008! Be sure to check out the other excellent entries this week!

  24. For what it’s worth, we’ve found that it’s best to lump “now” with “later.” This has forced our kids to do a bit more budgeting on their own instead of us compelling them to save for short term goals. We’ve also switched from weekly to monthly.

  25. Nice idea – also teaching about tithing and saving.

    I remember my first allowance – 10 cents each week. My dad kept a ledger.

    Great post!



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