BOSTON – Celebrating our anniversary last weekend, I asked my wife Susan a simple question about raising our children. After 22 years of marriage, I should have known there are no simple questions. The question involved whether we should raise our oldest daughter's allowance.
Thomson turns 15 this week. She is a money-savvy kid who has had her own investment account since before she could walk and an allowance since she was three. Recently, for the first time, she asked whether I'd consider a raise in the pay rate.
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I expected the issue to be a quick conversation with Susan — the most patient and understanding woman in America — and instead it forced us to spend two courses of our anniversary dinner revisiting the most basic money strategy we have used with our kids.
There's no right way to give an allowance; every parent presumably thinks they are doing the right thing. Allowance trends and norms are squishy, as parents and children seem to define "allowance" differently, making study results wildly variable. Most big studies on the subject seem to agree that allowances tend to top out in high school at about $20 a week, with that the high-end figure sometimes being cut when kids reach working age and get steady jobs.
"As far as giving an allowance is concerned, you can set up any system you want, so long as it works for your family," says Janet Bodnar, executive editor of Kiplinger's Personal Finance magazine and author of "Raising Money Smart Kids." "You don't have to run your family like an accounting firm, you just have to get the right lessons across."
Revisiting the allowance decision for my daughter meant considering several key questions, notably whether to pay, what to pay for, when to pay and how much. Our discussion covered the following ground:
Should the kids get an allowance?
The crux of the issue boils down to personal philosophy but, allowing for variations in execution and style, there are three main options: No allowance, pay for chores and work, or give a spending stipend not linked to work or behavior (the system we have been using).
With no allowance, the danger is that the parents will simply pull out the cash when the kid wants to buy baseball cards or go to the movies. That's money for nothing and it teaches children to rely on the parents for help. That's not a good life lesson, so making the no-allowance option work requires taking a hard-line "earn your own" stance.
If you pay an allowance, you need to ask: What are you paying for?
Most allowances are based on the principle of "substitution," pushing small spending decisions to the child by letting the weekly stipend substitute for something the parents might otherwise pay for. This way, it's the child dropping their own money for the goofy toy on the way out of the supermarket or paying for candy from the corner store.
Kids will spend an unlimited amount of money, so long as it's yours. When it's their own cash on the line they quickly learn that frivolous spending today can result in frustration the next time they want to buy something. And there will always be another "something" to buy.
It's not a free ride — my kids are expected to do household chores. An allowance that is linked directly to chores can teach kids the value of work and helps them learn that there is no entitlement when it comes to money. The drawback is that parents must make sure the work gets done and may someday encounter a request for cash in exchange for bringing in the groceries or picking up dirty clothes.
Some families also come up with "clothing allowances," which gives the kids responsibility for budgeting for and buying their school clothes.
Many families, mine included, combine allowances with for-pay chores that are above-and-beyond the routine; if the kids take on a job that the parents might otherwise pay for — like cutting the lawn — they take on responsibility and get paid for it.
When do you start an allowance, when do you increase it?
There's no wrong time to start, but the best opportunity to make a lasting impression is to begin before kids have a chance to develop poor spending habits. Most children begin having regular opportunities to spend money by the time they go to kindergarten, which is why experts suggest starting no later than age 6.
Lay out the rules — when they get paid, how much, what work they must do and what can earn extra, when they can expect increases and what the money is to be spent on — and stick to them.
My daughter's request for a raise was based on the family rules. Up to now, allowances have been based on age, specifically one quarter per week per year of age. One third of that money must be set aside for long-term savings (semiannual deposits into the investment account, which has helped teach the girls about investing).
Thomson argued that $2.50 — her 15 quarters per week, minus $1.25 for savings — won't buy much of a snack when she goes downtown with friends and it doesn't come close to buying a movie ticket. She suggested that a high school freshman needs more than a middle-schooler; she did not need to quote me various studies which suggest a weekly allowance of $1 per year of age because I see those surveys all the time in my job.
How much to pay?
This is a question of means and attitudes. When my kids are 17 and 15, the buck-per-year system will cost me $32 per week, more than $1,500 per year. That's steep, but the carve-out for savings would leave the girls about $10 a week from me, enough to buy that movie ticket, but not so much that they lose sight of the value of a buck.
Ultimately, that led to a new rule at home, namely that when one of the kids turns 15 their allowance jumps to $1 per week per year of age.
Says Bodnar: "Kids need to have some responsibility over money, not so much that they never worry about spending it and never need to work for more, but enough that they understand the value of saving and spending carefully."
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