I still remember it like it was last week. My older sister and I were sharing my dads lap.  The inquisitiveness of a dog about to be fed was all over my face as my dad explained the meaning of a bizarre word. The word ALLOWANCE. The business savvy I had been able to accumulate over the seemingly long seven years of my life was still a bit underdeveloped, but it was sufficient for me to ascertain from my dad’s explanation that this “allowance” thing was a really good deal!  Free money!  And there was no fine print.  Well, after a few years of doing my part in keeping 7-Eleven in business, and then fast forward another twenty years or so, my wife and I had been naturally granting our two older kids allowance for a couple years; at least until I read a book called Smart Money Smart Kids: Raising the Next Generation to Win with Money. It was written by Dave Ramsey and his daughter Rachael Cruz. This is when we changed things around a bit and decided to no longer give our kids money as allowance.  Here are a few nuggets of wisdom we learned from the book and have applied in our family.

1. Why we pay our kids a commission rather than giving them an allowance.  Doesn’t giving them an allowance give them a chance to learn to be responsible with money? That was what I always thought. “You give your kid a few bucks every week, so they can have some cash to spend, and in the process they start to learn how to use money.”  The only problem is, there are a lot of adults out there, who got allowances as kids, but somehow never really learned how to win with money.
Now we give our kids a commission. A commission that directly depends on certain work (chores) that they do, that we decided to pay them for. (They don’t get paid for ALL chores they do)
The problem with giving your kid an allowance is that it’s just free money. It doesn’t teach your kid an important life lesson: money comes from work. I don’t necessarily think there’s anything wrong with giving your kid some cash every once in a while just because you love them, and you want to bless them, but the wonderful thing about Dave’s commission plan for chores, is that it instills some very important values into your child.
Here are a couple:

• It teaches them the concept that money comes from work (not just out of no where, like entitlement). I believe it kind of derails any tendencies of drifting into a feeling of entitlement.
• They’ll be more careful about how they spend money they actually earned with their own sweat and time.  When you pay a price for something, you value it more.  There’s a big difference in how you treat a car you saved up for and purchased with your own money versus a car someone else purchased for you.

Note: I never bought the charts you can get that are included in the Financial Peace Junior packet. I just made a spreadsheet myself that we print up, and that works, but if you want to get the colorful, fun looking charts along with some great materials on this topic, you can buy them on Amazon right here: Financial Peace Junior

2. Three things we REQUIRE our kids to do with their money.
When you’re teaching your kids to brush their teeth, it’s not optional.  It’s something you train your kids to do, until it becomes habit.  It’s the same with training your kids in being good stewards of money. That’s why we require our kids to split their money into these three categories every time they get paid.  So for the rest of their lives all three will be a no-brainer for them.

• Giving
• Spending
• Saving

Giving is an important core value in our faith. We tithe to our local church, and try to give on top of that. I am convinced that generous people are more attractive, and blessed. I want to be always growing in generosity in every part of my life. I also want my kids to learn to be generous. All kids will be different in what comes naturally for them, and this is precisely why you have to force them to do this.  For example one of our kids is a natural giver, and is willing to give a large portion hard earned money away, easily.  On the other hand one of our other kids has a harder time with giving, but is a great saver.

Spending will always be one of the things your children will do with money for the rest of their lives. So if they have to spend a portion of their money, this helps them learn about being wise in their purchases and how they spend their money, doing research, finding the best price etc.

Saving isn’t natural for everyone, but just like learning to bathe every day, our kids need to learn to be savers. We don’t really determine how much they decided to save, spend or give, but we require from them that they do some of all three categories. Practically speaking, since they don’t have saving accounts, they have envelopes we keep hidden away with our other money, and they are treated like a bank account. I’m the banker, so if they want to make a withdrawal or check their balance they have to tell me.

It’s a simple plan, but it’s working great for our family, and I can honestly see this really growing into a habit for my kids as they grow up, learning to always be saving and giving, and not just spending no matter where they are financially throughout their lives.  Habits are powerful, so why not work on having good ones?

“Train up a child in the way he should go; even when he is old he will not depart from it.” King Solomon, the son of David.

“Make all you can, save all you can, give all you can.” – John Wesley 

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