© 2010 Rex Jaeschke. All rights reserved.
I was first introduced to the idea of an allowance through American kids' TV programs broadcast in Australia in the late 1960's. It seemed that every week each child in the family over some minimal age got spending money for the next week, and that some sort of "work" was expected of them in return. Certainly, the idea of pocket money was well known throughout parts of the British Commonwealth. However, as best as I can tell, the idea of a regular allowance for children was made popular in the US.
I love the concept of an allowance; however, rarely have I seen it implemented in what I would call a long-term coherent fashion.
My Own Experience
I spent almost all of my formative years living well outside any town, so I had no regular access to places to earn or to spend money. I had no on-going need for money, but got it from my parents as needed. For the five years that I lived on a 4,000-acre wheat and sheep farm I did, however, have a way to make some good money. I trapped rabbits, which were sold for both meat and skins.
At the time, all public schools in the state supported student banking, and except for remote schools each week an officer from the State Savings Bank would come to the school and take the money we'd brought for deposit. I believe our bankbooks were kept at the school. I distinctly remember leaving home on those days with a 2-shilling piece (equivalent to about 25 cents US) tied into one corner of my handkerchief. [My mother had opened that account on my birth with an initial deposit of £1, a lot of money back in 1953. When I finished school 16 years later, the account contained $400, which was £200. Australia converted from pounds, shillings, and pence to decimal currency in 1966.]
During the summer holidays of my high-school years, I worked cutting and picking apricots for drying. I was into slot car racing back then and managed to accumulate quite a track layout, set of cars, and accessories. During the school year, I bagged groceries at a supermarket after school and on Saturday mornings. [At that time, Saturday shopping hours were 9–11:30 am only.]
I did not get my driving license until after I left high school and had gone off to live in the state capital. I did not own my own vehicle for another three years. Instead, I used public transportation and a bicycle. I had no financial help from my family once I left home. My expenses just about equaled my income, and there were times were I had to dip into that savings account my dear Mother had created for me and encouraged me to augment.
My Son's Early Years
From very early on, my wife and I read to our son on a regular basis. He also had several series of "read-along" books with audio cassettes containing the narrative and directions of when to turn the page. As a family, we traveled quite a lot, mostly by plane, so I soon developed the idea of getting him a portable cassette player, so that he could keep himself entertained en-route without needing much adult intervention. That worked very well and he had the responsibility of taking care of and operating his own tape player. Of course, he needed batteries, so in return for small jobs he got enough money to pay for those. [I traveled away from home quite often, so was not able to read to him many nights. However, by recording my reading on tape he was able to hear me "on-demand". Likewise for his relatives who all lived abroad, but had visited and recorded stories.]
From time to time, he wanted some special toys and things, at which time he needed some income. However, he pretty much worked only when he needed money.
My son was about 11 years old and in 6th grade at elementary school when I started thinking seriously about a plan for his financial education. I talked to a number of other parents about how they handled allowances for their children, and much to my surprise, none of them had a plan. They simple gave their kids money "as needed". Eventually, I discovered that a colleague of mine had been in the same situation several years earlier. When his 11-year-old daughter was out shopping, she kept asking her mother, "Can I have that?" Very quickly, that got tiresome. Their solution was to put the daughter in charge of much of her own personal financial affairs.
The plan was quite simple, as are most good plans. Each week, the daughter got $1 per year of age, which at age 11 came to $11/week. From that, she had to pay her own personal expenses including clothing. The parents paid for large purchases such as a winter coat or shoes. If she spent all her money the first day of the new week, that was her problem, and soon she learned to save and plan her purchases, and to separate her needs from her wants.
The Jaeschke Plan
I found this approach very appealing, and I set about adapting it to my own situation. (Thanks much Tom, Pam, and Claire.) I asked my son to prepare an annual budget including everything from music CDs and computer games to haircuts. I agreed to pay for his music lessons and required sheet music, but he would pay for any extra fees or materials. I would pay for his martial arts lessons and required equipment and materials, but he would pay for any extras. He would buy from me reams of paper for his computer printer. I also asked him to include an average weekly savings contribution of $5.
After several revisions of his budget, we settled on $20/week. Each Sunday, he'd get $20. He wasn't required to save $5 every week, but he did have to save that much, on average. Initially, I opened a savings account for him at a local bank, and once a month he'd deposit his savings and any excess cash there. After some time, we discussed doing more with his money than just a savings account; besides, we'd been talking about a savings plan for college.
One of his godmothers was in the financial planning business, so she got together with my son to discuss his options. And they did that periodically for some years. While he was prepared to be more aggressive with some of this savings, he also wanted some safety for a good piece of it. We agreed on a combination of a mutual fund and Certificate of Deposits investment program and labeled it as his "college fund". I contributed a tidy sum to open the account, and each quarter my son would move most of his savings account balance to his investment account. I also gave him a financial reward for any A's he received on his report card. However, he understood that the investment account was for college, and that it was not available for him to withdraw for any other purpose.
The program worked very well, and he learned to plan and save. We reviewed it each year, but left it the same. There were no cost-of-living adjustments.
The High School Years
My son was 14 when he went off to High School. He attended a public Science and Technology school some distance from home and had to ride a bus 40 minutes each way. We continued the same allowance scheme through all four years.
In my state, Virginia, students can obtain a driving permit at 15½ years of age. In the year that they turn 16—the age at which one can obtain a full license—all schools in our public school system offer 10 weeks of Drivers' Education. At the end of that time, students take four weekends of driving lessons either from private instructors or from Drivers' Ed teachers. Then they take a practical driving test and get their license.
My son's high school probably had more than the usual percentage of students driving cars to school every day. And some of those cars were rather expensive models. Students had to pay an annual fee of $100 for the privilege of parking at the school. My son was never interested in having his own car, which was just fine with me. With all his studies and extra-curricular activities, he wouldn't have had time to use it much anyway outside commuting to school, and why pay to do that when the bus ride was free. In fact, two years into high school, he gave up his music and martial arts lessons, as he had no spare time. [At home, there were only two parking spaces per house, and those were already taken, so there wouldn't have been a place to park a third car. In any event, the most expensive car insurance in the US is that sold to cover single males younger than 25.]
When my son turned 16, I offered him his own credit card with me as a co-signer. The credit limit was $1,000. If he was going drive occasionally, he'd have to buy his own gas, and rather than buying a few dollars worth each time he would fill up the tank as needed, and at the end of the month we'd go over his statement and pro-rate costs he'd incurred that were shared with us. So he got used to managing a small line of credit, and he had a source of funds if he had an emergency or during his school camps and trips abroad. There was one big caveat, however; he had to pay his credit card bill in full at the end of each month, or the card would be cancelled.
Halfway through his Junior Year (Year 11, before his 17th birthday), he was left home alone for a week. [This happened five or six times before he graduated high school 16 months later.] He had cash, a credit card, a driver's license, the use of a car, and the house to himself. He had to get himself up and ready for school each day, manage his time, prepare his own meals, and make sure he got enough sleep to get him through the week. He was allowed to entertain guests, but no more than five at a time. Basically, he got to be "independent with a safety net".
Off to College
My son attended a Virginia State University for four years and lived on campus throughout. I paid for most of his tuition, room, full meal plan, and books. He used his college savings account to pay for several semesters of tuition fees. He did not own or operate a vehicle during his time on campus.
When it came time to figure out his allowance, we started where we'd left off in high school. (Once again, we spoke to other families about how they had handled it, and once again, we found no one with a plan.) We soon settled on $25/week, but rather than pay him weekly, $100 was deposited into his account at my local branch of his bank each month, and he could access that from the branch at his end. In later years, I simply gave him $400 at the start of each semester, and he managed it himself. He also had a checking account.
Once he got acquainted with life on campus, he decided to get a part-time job. When he had a regular and substantial income (as a front-desk assistant), we agreed to suspend his allowance. He didn't have to work, in which case, I'd give him spending money, but if he did work, he got no spending money from me. For most of his final two years, he was a Resident Advisor, for which he was on-call 24 hours a day. His payment for that was a free single room and full meal plan. As he got no cash, he went back on the $25/week plan.
I think the experiment worked very well. By the time my son got to university he'd been using a credit card for two years, he'd had to budget for at least six years, he'd been involved in decisions about where to invest his savings, and he'd been completely in charge of himself for some weeks—a week at a time—at home. [In contrast, during his second year, the university admitted the smartest lot of first-year students in its history, yet a large percentage of them went on academic probation after the first semester because they had no idea how to live responsibly away from home. And there is no doubt that many of them had been getting a weekly allowance of much more than $20. In fact, I've heard of numerous cases of high school kids being given $100–200/week plus access to a car! You reap what you sow.]
I'd like to hear from readers what has worked for them, and, of course, what didn't work. Remember, nothing is a complete waste; it can always serve as a bad example.