When it comes to raising money-smart kids, the question asked most often of me has to do with allowances -- How much and how often?
Let me share what's happening in my household to try and provide some food for thought.
We started giving Spencer, our 6-year old, an allowance this year. He gets $6 (nothing magical about the amount; just $1 for each year, which will increase $1 each birthday) every Sunday evening, which he then puts in his piggy bank. As you've read in earlier articles, I suggest the four-chambered piggy bank labeled for savings, spending, investing and donating. Because he can't tear a $5 and $1 bill into pieces, we give him six $1 bills. He then allocates them as follows:
"¢ $2 in the save chamber (for a Lego toy he wants to get).
"¢ $2 in the spend chamber (for things he wants to buy during the week).
"¢ $1 in the invest chamber (when he gets a bit more money we'll take him to the bank to open up an investment account).
"¢ $1 in the donate chamber (for a charity he'd like to give to).
My wife brought to my attention that he could use a little extra help learning how coins work. With this in mind, we changed the routine and began to lay out his allowance on the table every Sunday evening as follows:
"¢ two $1 bills
"¢ 4 quarters
"¢ 10 dimes
"¢ 20 nickels
"¢ 100 pennies
We obviously have a trust issue going on in our household as he feels the need to count out all the coins to make sure we didn't "short" him. I guess that's like counting your change at a check-out register so I shouldn't take offense. (Truth be told, it probably hurt me a bit when it first happened.)
On a funny side note, Samantha, our 3-year old, wanted to get into the act. She went to her piggy bank and took out some coins and put them randomly on some of the piles. Of course, we had to re-count all the coins to make sure we had the right amount. Spencer then had a side conversation with her and said it would be OK if she ever wanted to take some of her coins and put them in his bank. What a capitalist he is! (And I'm not sure Samantha's philanthropic heart has Spencer at the top of her charity list.)
The point here is this: there are usually plenty of alternatives for any lesson plan you undertake to develop financial literacy in your child, including allowances. Keep your antennae up for other opportunities to take advantage of "teachable moments" that could have a lasting impact on your child and their future.
Look around you. See how you (and others) interact with your children and money. Some of the best lessons children learn happen in the everyday flow of their lives -- not in the classroom.
Tom Henske, a Westport resident and partner with Lenox Advisors, a wealth management firm with offices in New York City and Stamford, developed the Lenox Money-Smart Kids Program in conjunction with MassMutal Financial Group. He can be reached at thenske