I’ve written previously about the allowance system that we implemented for our kids, and I just thought I’d post a quick update as to how it’s been working, as well as how we’ve tweaked the system since we started. First off, I’d have to say that the system that we created is working quite well. The kids are excited about managing their money, and they’ve done a pretty good job with it so far. Sweeping their long term savings into an ING Direct savings account at the end of each month has been a hit — in fact, they can’t wait to log in to see how much interest they’ve earned each month. It did not, however, take long to realize that the 30/30/30/10 scheme for dividing their money into pots for long term savings, short term savings, spending, and charity was a bit too inflexible.
In short, I’ve found that our original system imposed a bit too much order, and didn’t give our kids enough latitude to make (and learn from) mistakes. The main culprit here was the distinction between short term savings and spending money. We’ve now simplified the system by putting 60% of their allowance into the spending category and abolishing the short-term savings category entirely. It’s now up to the kids to decide whether (and how much) of this money to save for bigger ticket items, as opposed to frittering it away on smaller, more immediate purchases.
As it turns out, we’ve got a couple of savers on our hands — our seven year old has already saved enough to purchase a portable CD player (complete with MP3 capability) and our five year old is rapidly closing in on a Star Wars GameBoy game. Our three year old is too young to really ‘get it’ yet, and he doesn’t officially take part in the allowance ritual (nor does our baby). I do, however, give him a quarter on allowance day (which he promptly deposits in his piggy bank), and he’ll ultimately join the fun when he turns five.
To make a long story short, I’d have to say that the increased freedom to spend vs. save has been a change for the better, and it has led to some good dilemmas of the “if I buy item X right now, how much longer will I have to wait before I can afford item Y?” sort.