It is a day I remember well, because it was the first day that I realized that “allowances” were working against us and that money was helping me spoil my kids much more than it was helping me teach them anything. It was a Saturday morning, and I was trying to catch up a little on sleep. I was awakened by loud knocking on the locked bedroom door. Groggily, I got up and opened it to find three little kids with their hands out saying “Gimme my money, gimme my money, its allowance day.” To my sleepy eyes, it all looked a bit like a welfare line. I had just opened the window, and here were the people with their hands out, collecting the dole!
We had created an economy in our house all right, but it was an entitlement economy! My kids, I realized in that brief epiphany, saw no connection between performance and reward, they perceived no real ownership in the money we gave them or the things they bought with it, and they were learning the antithesis of initiative and responsibility rather than the essence of it.
Over the next several months, we worked with some other parents who had some of the same concerns, and developed what we started to call “the free enterprise family economy” with the goal of creating something of a microcosm of a real workplace and market in each of our homes and better preparing our kids to handle the real economic world someday, and to be more responsible and motivated in our own world in the meantime.
The “family economy” has since been tried and perfected by thousands of other parents, and has proven to be a surprisingly fun way to give young children the sense of “ownership” that is always a prerequisite for even the most basic forms of responsibility.
The system described here works best when it is started with 7- 12-year-olds, and we think 8 is the ideal beginning age. (In fact, we suggest that if you have kids under 8, you inaugurate it with them starting on their eighth birthday.) Having said that, the “economy” works well with kids up to at least 15, though your methods of explaining and implementing it may have to be adjusted for teens.
The basic thesis of the idea is that if kids are given a legitimate and fair way to earn money, they will develop initiative and motivation because they perceive ownership. If they have a chance to budget and spend that money they will learn discernment and discipline. If they save and invest their money they will understand delayed gratification. And in the process, both their gratitude and generosity will have a climate in which to grow.
The basic process of the idea is to take the money you are already spending on your kids and re-route it through their ownership and choices, and to make the whole process part of a natural economy, where parts of the money that comes into a household goes out to those who do parts of the common work of the household.
The basic premise of the idea is that it is better to have children learning the lessons of earning and spending and saving (and making mistakes in all three) while they are young and the stakes are small than when they are older and the stakes are large (and when banks start sending them “pre-approved” credit cards).
The basic props of the idea are a family bank (a big wooden box, maybe painted silver or gold, with a big padlock on it and a slot in the top), a checkbook for each participating child (a real checkbook with the child’s name imprinted and with a check register—get them from a bank… open an account and close it if you have to), and a basic pegboard with four pegs for each child (the bigger the better, and the pegs better be tied or chained on, or they will get lost.)
How to Implement a Family Economy
1. Announce to the child that you believe he is now old enough to become part of the family economy. This will mean that he will be able to have much more money than he has previously had, but he will be expected to earn it, and he will then be responsible for buying the things he wants rather than asking you for them. He will have an account in the Family Bank, and will have his own checkbook so that he can take money out of the bank by writing a check and put money in with a deposit slip. Show him how the checkbook has a check register so he can always keep track of how much money he has. (Have $50 in the account and already written at the top of the check register.) Tell him you are very proud of him and excited for him to have a checkbook and a bank account just like you.
2. Explain that there is a certain amount of money that comes into the household, and there are certain things that need to be done to keep the household going and in good shape. Make a list of all the jobs, tasks and maintenances that are required. Include specific things like cleaning each room, fixing each meal, mowing the lawn, doing the wash. Also include things like getting kids ready for school or bed, making sure the homework and music practice gets done, getting everyone ready for bed. Ask if it makes sense that those who participate in the work in the household should get part of the money that comes into the household.
3. Ask how the child thinks he can get more money into his bank account and into his checkbook. Explain that you have decided that he is old enough to have responsibility for some of the things that have to be done in the household, and that if he can remember to do them, he will get paid on “payday,” which will be each Saturday. Introduce the pegboard (which should have his name on it) and explain that there are four pegs he can get each weekday, and that each of them will go toward the amount he earns for the week. The first peg is the “morning peg” and can be put in when he gets up on time, gets ready for school, has breakfast and has everything together to leave for school on time. He can put the second “homework peg” in after school when he has finished his homework and his music practice. The third “zone peg” can go in when he has checked on and cleaned up his zone. (Each child should have one small “common area” of the house—a hallway or closet or front porch—that everyone uses. This should be an area that you don’t clean—that is left for the child.) And the fourth “bedtime peg” goes in if he is in bed by bedtime; teeth brushed, prayer said, school stuff laid out for the next day.
4. Explain that before bed each weeknight, the child can get a “slip” (small cards or post-it notes work fine) and write a 1, 2, 3 or 4 on it, depending on how many of the pegs he got in that day. The slip must then be initialed by a parent (or by the tender if the parents are out) and can then be put through the slot into the family bank. On Saturday it is payday, and the bank is opened by the banker (we usually suggest dad) and each child gets his slips and adds up his total. How much “pay” he gets is according to how many pegs he got in during the week.
Pay does not come in cash, but by a debit entry in the child’s check register, initialed by the banker. The child can then take out as much as he wants by writing a check (or he can bring along his checkbook when he goes shopping with a parent, and write out checks for what he wants, always being sure to deduct it in his check register before writing the check.) The check goes to the parent, who then pays for what the child bought. The beauty and benefits of the Family Economy will begin to manifest themselves right away. Suddenly the kid you hated to take shopping or anywhere near a mall because you had to say “no” about a hundred times (every time he said “can I have that?”) is fun to take along because this kind of conversation begins to happen:
Child: Can I have that? You: “Sure” Child: (looking at you like he must have misheard) “I can have it?” You: “Of course you can. Did you bring your checkbook?” Child: (a look of horror) “Oh no, I forgot my checkbook!” You: “I feel your pain son; I’ve done the same thing. I hope you remember it next time” Then the next time you are together in some commercial establishment (and he has his checkbook): Child: “Can I have that?” You: “Sure, you can buy anything you want. Got your checkbook?” Child: “Yep, hand that down to me.” You: “OK, here it is.” Child: “How much is it?” (The question has never occurred to him before.) You: “Well, look there on the price tag.” (He had never noticed price tags before.) Child: “$19.95. Twenty dollars!? They want twenty dollars for this? Do they think I’m stupid? Put this back up there dad!”
And the learning goes on! There will be the time when the 9-year-old pays a hundred bucks for a pair of designer label jeans and wants to take them back the next day (dirty of course) because she forgot she needed money to go to the movie with her friends.
And the time when you see your son’s shirt hung neatly in the closet for the first time in memory and ask him if he’s feeling alright, and he says, “Mom, I paid thirty-five dollars for that shirt; I’m not leaving it on the floor.”
And even the time when your daughter sees the tsunami victims on TV and comes in with her checkbook and says, “Can I send some of my money over there to help those people?”
The fact is that, once kids perceive ownership, many things become possible that just were not feasible before. Things like giving. Things like real gratitude. Things like budgeting. Things like taking care of things and taking pride in things. Things like saving.
As the pegs and the bank and the checkbook and the responsibility for buying things become established (don’t expect a perfect system right away—let it build, and let the learning come at its natural pace), you can introduce the element of interest in the family bank. Let the child have a second, interest-bearing account in the bank that is separate from his checking account. Have a passbook in the bank that keeps track. Negotiate the interest, but let it be high, and often, and so their money will grow fast, but put in the stipulation that the money in that account is for college, and agree on the percentage of college tuition that they will pay.