Today a friend told me how much he gives to his kids as an allowance.  It got me thinking about the ways I might use allowance to teach my kids about money. 

When I was a Little Jeff

When I was growing up my dad kept a spreadsheet in Lotus 1-2-3.  If you know what Lotus 1-2-3 is, then you might be older than me.  The spreadsheet calculated each kid’s allowance based on age and various other factors.  I’m not sure what the other factors were.  Dad, if you read this and if it’s no longer a trade secret, please feel free to disclose the other factors in the comments. 

A penalty was subtracted for leaving chores undone, disobeying, and other delinquent behavior.  The spreadsheet required just a few user inputs, and then automatically updated itself to calculate the allowance for each kid. 

Allowance was paid at irregular intervals.  It didn’t matter how often because the spreadsheet took into account the time elapsed since the last allowance.  The spreadsheet figured it all out. 

When it came time for allowance my dad printed out the spreadsheet.  We sat down as a family and my dad distributed each kid’s allowance.  My typical allowance would be about eight bucks.  It was never a round number because the spreadsheet was precise.  If the spreadsheet said $8.77, I got $8.77.  No rounding.

Each kid had a little cardboard bank.  My entire net worth was in the bank.  I liked to have a mix of coins: quarters, nickels, dimes, and pennies.  I was always short on dimes for some reason.  I tried to trade away quarters and nickels in exchange for dimes.  I would say to my brother: “I’ll trade you FIVE pennies for ONE dime.  You’re getting five and only giving up one.  I think you should do it.”  It worked until he got older. 

One of my brothers always had large penalties.  The penalty deductions would zero out his allowance and then some.  He had to put money back into the allowance pool.  To this day he jokingly insists he paid most of my dad’s mortgage.

No allowance was paid when you had a real job.  In fifth grade I got a paper route.  I never got allowance again.  It was a smart rule that kept my parents solvent through eight kids.

One Family Uses Capitalism

My friend told me of a family that used a free market system.  When a job needed to be done, the parents got the kids together and auctioned off the work.  Each kid was allowed to submit a bid.  The kid with the lowest bid won the right to do the job.  For example, the parents might auction off the right to take out the garbage for a week.  If the lowest bid was $5, then that kid would take out the garbage for a week and make $5 in the process.  Then they might auction off a harder job, like mowing the lawn.  The lowest bid might be $10.

I am intrigued by the free market system because it teaches basic laws of economics.  The kids would learn that some jobs are hard or require more time and effort, like mowing the lawn.  Those jobs command a higher price because there is a lower supply of willing labor.  On the other hand, the abundant supply of labor for the easy jobs, like taking out the garbage, drives down the price. 

There would be wonderful opportunities to teach your kids that the “grown up world” follows the same rules.  There are hard jobs that require more time, effort, and education.  They pay more than the other jobs. 

I don’t know that I’ll implement the free market system, but I might.  I’m curious how long it would take my kids to figure out they could drive up the price through collusion.  Then I’d have to set up antitrust laws.  If it got really out of hand I’d impose communism and assign jobs at a price determine by the state.  If nothing else they’d learn to appreciate capitalism.

Do You Have Other Ways?

How did your  parents handle allowance?  Did they incorporate free market principles?  Was it determined by age or some other formula?  Or was it ad hoc?  Please leave a comment if you have any interesting ideas on how to handle allowance while teaching kids about money.