Paying for Chores with Allowance

Figuring out how much to pay your child is easy. Beginning right now, write down how much you spend from this point forward on things for your child that are not “necessities” – things like candy, videos, toys, CDs, trinkets, and other extras. Also, write down the things that your child asks for that (would) require you to spend money. To the best of your ability, write down what you have spent on these things in the past month for each of your children. Keep this list in a place where you can easily update and refer to it.

I had a parent ask me recently how to determine the difference between needs and wants. My answer is that needs are items like shelter, food, clothing, education, and security. Everything else is a “want.”

When you have finished the list, add up the total amount of money you usually spend on your child throughout the month. This is the amount you will pay your child for the chores and services they provide to you. I will show you later how to figure out a daily amount.

How Do You Pay the Allowance?

I believe that giving a child an allowance for nothing is harmful. “Free” allowance creates an attitude of entitlement (you owe me) that will last all of your child’s life and will haunt you during yours. I’m sure you’ve heard, “Mom where’s my allowance?” Or as soon as your children decide they need money, they say, “Mom, you owe me an allowance!”

I mentioned earlier about the employee who does absolutely nothing to help you because he or she is working only to collect a paycheck and could care less about the customer, the boss, or the product they sell. They don’t understand the concept of earning their money. This may not be directly related to allowance, but it’s certainly related to “entitlement.”

It’s a well-known fact that when someone gets something for nothing, they don’t appreciate it as much as when they earned it. If you give your child an allowance for nothing, they will learn to take money for granted and put little value on it.

Money By Virtue of Age

Some parents prefer to give their children an allowance according to the child’s age. This is somewhat better than giving an allowance for nothing, but it’s still problematic. Most parents who use age as their criteria don’t give enough money for the child to do anything worthwhile with the money. These days, a simple purchase like a CD or a kid’s video game can cost $20-$50. If you give your young child only a small amount to match his or her age, how quickly will your little one be able to make such a purchase? If it takes too long, your child will likely end up buying candy and junky inexpensive toys in order to get quicker satisfaction. Moreover, your child will learn “poverty thoughts.” Whatever your child wants will appear too expensive, and this will lead to thoughts that he or she can never afford desired items. With such thoughts, your children may feel that if they can’t afford what they want, how can they possibly give, invest, save, and spend wisely?

If you don’t want to teach your children poverty thinking, make sure that you give them an allowance that will allow the practice of the 10/10/10/70 concept while still making it possible for them to buy what they want.

Money or Reward for Services Rendered?

My personal favorite way of dispensing an allowance is to pay children for services rendered. I especially like this approach because it can begin at a very early age. As soon as your child understands that money gets them what they want, it’s time to have your child start earning an allowance.

Relating an allowance to services rendered helps your child to understand that when they provide a service, they are rewarded for that service. And the greater the service, the greater the reward. Not only is this a good way of warding off an entitlement attitude, it’s an incentive for a child to think about different ways money can be made. Your children will start to realize their financial situation is directly tied to what they do in life. Your children will become very creative in providing services that produce an income.

Using allowance this way is not so much paying them to do something as it is teaching your child valuable lessons in how money works. Another advantage of tying an allowance to services rendered is that it will teach your child the value of earned income. They will be more likely to put thought into what they spend their money on than what they’d be willing to spend your money on.

It’s Human Nature to Strive for Rewards

It’s human nature to do whatever is necessary when a reward is waiting at the end. We all want to be acknowledged and receive recognition for a job well done.

If you were to walk into any classroom, you would see a teacher giving incentives to their students with candy, stickers, tickets, and anything else possible for good behavior, bringing in homework on time, or sitting quietly at their desks. In addition, children lose table points, stickers, and special privileges for not following good behavior and rules.

Students receive ceremonies for being on the honor role and certificates and special trips for good grades. Salespeople are rewarded with bonuses when meeting quotas, CEO’s are rewarded large sums of money for innovative thinking, and employees are rewarded for finishing projects on time. Coaches reward their players with captain badges, game pucks, and trophies.

These are all incentives that students, kids, employees, and CEO’s strive for and deserve. Teaching your children to strive, work hard, and overcome obstacles is something that will stand them in good stead for the rest of their lives.

After five years of testing, researching, and receiving parents’ input, we have definite proof that the benefits of allowing your children to earn an allowance far surpass the benefits of just handing them money.

For my son’s back to school night, his teacher explained the reward system for good behavior and completing their assignments on time. She used to reward the kids with candy, but now that the State of California has declared an emergency with kids and obesity, she has had to change her rewards from candy to tokens, tickets, and a point system.

How does this differ from parents rewarding their children at home for good behavior and finishing chores? There is no difference between tokens at school for bringing in homework and rewards at home for doing homework. Earned allowance doesn’t differ from the coach who rewards his players with a game puck. This teaches cause and effect and that effort produces rewards. It teaches about striving and succeeding, overcoming obstacles, about how to work hard for what you want in life, and about never giving up. These are habits necessary to succeed in life.

Few children are internally motivated to do their best, but with an incentive, they will take the initiative to try harder and achieve the task. This is where I challenge the myth that parents should not reward children when it comes to chores and allowance.

Your child is too young to work. You are their only source of income, so you have no alternative but to provide your children with spending money and buy them the items they need and want. With this in mind, research has shown it takes 30 days to create a new habit. Allowing your child to earn the money you are spending anyway can teach successful habits, which, over time, will become a disciplined positive new habit.

The Value of Money

Your child receives money from you, from friends and relatives on special occasions, and through earning. What you choose to do regarding an allowance will have a profound and lasting impact on your child. I encourage you to become a parent who instills the value of money by doing the following:

1. Begin helping your child learn the relationship between money and the value of service by tying an allowance to services rendered. Begin as soon as your child understands what money can do for them.

2. Begin using the 10/10/10/70 concept from the very beginning. As soon as you give your child his or her first allowance, begin using Money Mama. If you don’t teach your children how to give, invest, or save ten cents out of their first dollar, they won’t do it with a $10, $20, or $100.

3. Use an allowance to instill the value of money in your children. Since they’ll be spending their own money and not yours, I promise you that from this point forward, your child will think twice about what they purchase with their money.

Allowance is one of the keys to healthy financial literacy. Children can easily learn that if they want more money – regardless of the reason – all they have to do is come up with ideas for how to earn it. It’s never too early to start teaching children about money, money management, and the 10/10/10/70 concept.

Subscribe to Our Newsletter! Name Email   New York Times best-selling authors Mark Victor Hanson and Robert Allen give a powerful foundation for Prosperity 4 Kids creator Lori Mackey. "Finally, a Real Piggy Bank that teaches life's 3 most important financial lessons to kids instantly. I love this product and want every kid to have one starting at birth." Mark Victor Hansen Co-Author of Chicken Soup for the Soul and 79 more New York Times #1 best-selling titles "Just imagine where we would all be, if we were taught this valuable lesson as children. Prosperity 4 Kids is a wonderful way to start your child on the road to financial success." Robert Allen Author of New York Times #1 bestsellers Multiple Streams of Income, Nothing Down and Creating Wealth I had the absolute privilege of personally coaching Lori Mackey at the beginning of her entrepreneurial career. I congratulate her for creating Prosperity4Kids, Inc.,  a cause-driven idea for kids that will assist today's children in becoming our society's entrepreneurs of the future. I am proud to have been a small part of her vision. Jeffery Combs, President Golden Mastermind Seminars, Inc.