Learning Capital

Learning Capital

Think of allowance as “learning capital”: your kids need to have some to learn how to use it responsibly.

Kids need to have some money so they can experience and practice using it. Basing allowance on chores, behavior or grades may accomplish some desired goals. But it also complicates and diverts the purpose of allowance as a learning tool.

Instead of basing allowance on behaviors, consider basing it on specific financial responsibilities.

Setting up financial responsibilities forces your kids to stretch out their money or face the consequences. If they had blown their cash on junk food or comic books, what happens when they need to buy a friend a birthday present, replace a broken guitar string or buy lunch at school? These are expenses you can transfer to them as part of their allowance “deal.” They will quickly learn the importance of resisting every whimsy and temptation.

You want your kids to learn how to make these trade-offs, tell themselves “no” when appropriate, and distinguish between wants and needs: three of the basic financial values they need to learn (see Financial Values).

My ebook, Kids and Money Guide to Learning Capital , shows you how to set up responsibilities-based allowance. Here’s the basic idea:

Nondiscretionary Cost Who Pays
School Lunches
Discretionary Cost Who Pays
Movies and Videos
Gifts for friends, family
Batteries for Toys