Forget cash allowance; give your kids a number instead

Imagine growing up in a home where you never received your allowance in cash? From the time our children were pre-schoolers, they received their allowance as number in their account, had total control of their money and had to pay their own bills. It was all money we would spend on them anyway, we simply transferred responsibility and decision making to them.

In my award-winning book, The No-Cash Allowance,  I offer parents a guideline to setting up a similar financial education in their home. Requires no financial expertise on the part of the parents, only a willingness to get started and see what happens when you let your child have real hands-on experience managing money.

Here’s an example from our experience with the no-cash allowance. One daughter adds her weekly allowance and records the new balance. She announces that there’s enough to buy a new sweater. Her sister updates her own balance and asks me if we could stop at the bookstore. I take the girls shopping and pay for their purchases using my credit card. When we get home they subtract their shopping expenses and update the balances in their accounts.

Throughout this experience no cash has exchanged hands yet everyone knows exactly what happened. Deposits were made, account balances got bigger, purchases were made and account balances got smaller. Also, neither child asked me for more money or asked me to buy something for them. They took responsibility for their own spending decisions and the resulting change in their account balance

Learning to manage money as a number is the world that your kids will live in as adults. You can help them develop the money management skill to help they prepare for the future. Your children can start learning now.

You can do this by setting up a system like the no-cash allowance and providing the resources they need (money), giving them control (while you bite your tongue), and assigning responsibility for appropriate child-related expenses. “Yes, Johnny, you must pay for your school supplies with your own money.”

Typical comments of a no-cash allowance kid.

 “This is my money. I can write in my own allowance every week.”

“I have to pay my phone bill this week and remember that my school activity fees are due next week.”

 “If I don’t buy that CD today I will have enough next week to buy that jacket I want.”

Parents discover they can have realistic money discussions with their kids.

 “You recorded your allowance. If you want more before next week, consider doing some of the chores for pay.”

“Yes, Suzy, you did get paid for mowing the lawn. It’s in your account.”

“It’s your money. If you spend that much on the movie you may not have enough for the field trip.”

These situations offer a great opportunity to discuss real-life costs and choices. Parents can help children understand that each money decision affects their total money resource.

Kids can understand that there is a bottom line. By setting up a system as explained in The No-Cash Allowance your kids will develop money management skills by making decisions and learning from the results. This is one of the best lessons that your children can learn before they leave home

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