Why Your Kid’s Allowance May Not Be Teaching Responsibility

no-cash allowance system
A mom helps her daughter add her allowance to her account.

What would happen if you started a no-cash allowance system with your children?

A no-cash allowance starts as an at-home account where parents act as bankers and the child as account owner.

This means that all funds you give your child are directly deposited (written in) your child’s home account. As a result, your child can only receive cash by withdrawing it from the account.

Child’s version of adult money management

Keeping track of money as a number gives kids experience managing money like adults. This is especially relevant because it’s never too early to start giving kids the experience of managing money they can neither see nor touch.

In the adult world of money most funds are electronically transferred in and out of your account. No one tells you how to spend it. You are totally responsible for keeping track of your money so you have funds available when you need them.

A no-cash allowance for children creates a similar scenario.  In the case of kids, the money deposited in the account comes from allowance, chores and gifts.

Yes, the money is yours. Yes, you are doing a sleight-of-hand in writing it in your child’s account. Most of all, the idea is to get funds into the account so the kid can have a bottom line to think about and some real decisions to make about how to use it.

Kids manage their account

Requiring your child to manage a balance along with having certain spending responsibilities makes the no-cash allowance system a child-size version of adult money management. Your child is now totally responsible for keeping track of the money so funds are available when needed, for both fun and necessary expenses.

No-cash allowance example

Here’s an example of a spending situation from our experience using the no-cash allowance. One daughter opens her account book (or computer spreadsheet), adds her weekly allowance and records the new balance. She announces that she has enough to buy a new sweater. Her sister updates her own account 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.

Start money management for kids early

This is the reality of money that your children need to start learning about now. Expecting anyone to learn how to manage the complexities of money overnight is asking for problems. Yet we expect an 18-year-old to suddenly be able to manage money (and be legally responsible for money) in all forms with little or no training. T

hat training must include actually making real decision with real money. One of your responsibilities as a parent is to help your child make the important transition to the adult world of money where financial pitfalls are many.

You can do this by setting up a no cash allowance system 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.”

Benefits for your child

Ownership Children want to have the power to control money just like they see adults doing. “This is my money.”

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

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

Benefits for parents

No more begging for money Your child will know when, what for and how much money he will have.

No misunderstanding “Yes, Suzy, you did get paid for mowing the lawn. It’s in your account.”

Money becomes neutral topic When you child has ownership of his funds it becomes easier to talk about money as a separate entity.

Consequently, expenses become real. Something as simple as buying school supplies takes on real meaning. When the money comes out of your child’s account, she makes the decision about what to purchase, based on her available resources (account balance). 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 need to see that there is a bottom line. By setting up a no-cash allowance system as explained in my book, your kids will learn that managing money is all about making decisions.

In conclusion, this is one of the best lessons that your children can learn before they leave home.

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