Feeding my daughter's piggy bank: Tips on giving an allowance

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My sweet daughter found a little change purse in her playroom the other day.

“Mommy!” she said, upon opening it. “I have no money! If it weren’t for you, I’d be out on the street!” (Don’t kids say the darndest things?)

She then asked the question all parents dread (or at least I did). And no, it wasn't “How are babies made?”

The questions was, “How do kids get money?”

Yes, my seven year old now seems to get the concept that money gets you things. And now she wants it.

Like the going rate for the Tooth Fairy, I wasn’t sure what the going rate for allowance is these days. In fact, I was wondering how to explain what allowance is, period. Back in the old days, that is, when I was a child, I had to do things to get my allowance, like make my bed, keep my room clean…

But my daughter has a nanny. Rather, I have a nanny, an amazing one, who makes my bed (my daughter sleeps with me, her bed doesn’t need to be made) and who also keeps my house in order.

So what could my daughter do to make or earn her money? Do I ask her to massage my feet? (not a bad idea!) Does she get money for doing her homework, which is something that she needs to do anyway? (I don’t believe in paying her to do her homework) What does allowance mean these days?

I was caught off guard and couldn’t think of anything, so I gave her five dollars to clean the kitchen. (And, yes, she put the dirty dishes in the dishwasher, which was full of clean dishes. One of those incidents where her “help” caused more work)

I definitely needed help. To get some, I called the ever-friendly financial and children’s expert Jeanette Ramnarine, of Four Piggies Publishing and the founder of www.fourpiggies.com. Here's what she had to say:

1. She says that children begin to start showing an interest in wanting things when you take them out shopping, often between the ages of 3 and 5 (Lucky me! Rowan is 7) “This is the best time to start an allowance,” she says. “This is the time children will also start showing an interest in counting and asking questions about money. Beginning an allowance at an early age is the best tool you have to start teaching your child some important financial lessons.”

2. She says that we should use allowance as a teaching tool, so not to link it to chores. “We feel that learning financial responsibility is a life skill that is just as important as math, reading, writing. And our children have certain responsibilities to help take care of our home because they are part of the family. That being said, as children get older, they do need to learn how to earn their own money and we encourage them to become creative in finding ways to earn some of their own income.” She suggests the book "Kidspreneurs". “Reading it with our children has shown them that the power to earn money lies in their hands and ignites in them an entrepreneurial spirit,” she says. 

3. The going 'rate' for an allowance is a personal decision, she says, “Their allowance has to be enough to give them the ability to make some of their own decisions and learn how to budget their own money for things that they need. Our children are 6 and 8 and we give them $1 for each year of their life, but it has to be split between four piggy banks for 'spending', 'savings', 'sharing' and 'schooling'. We allow them to choose how they want to split their money between their piggy banks as long as some of their allowance goes into each bank." (I love this idea.)

4. Allowance is the, “Single most important tool that a parent has at their disposal to raise financially-responsible children,” she says. It teaches decision making, delayed gratification, pride of ownership, and accountability. “It transfers the responsibility of handling and budgeting money from the parent to the child.”

5. She suggests parents use spare change for allowance (instead of bills) so their children can use the four piggy banks and decide how they are going to budget that money between them.

6. She suggests that to explain what an ‘allowance’ is, just say, “An allowance is the money that your parents are going to pay you every week so that you can budget for the things that you need.”

After Jeanette Ramnarine’s suggestions, I hate to say it, but I wish I could go back in time. Heck, maybe I’ll get four piggy banks for myself as well.

For more allowance-related insight, check out what our financial expert, Caroline Cakebread, had to say in her blog about giving your child an allowance.