Charlotte Baker is the mother of two young adults whom she has successfully raised to be financially responsible adults. Her daughter runs her own business teaching teenagers about personal finance, and her son bought his first home at age twenty-one while contributing to his 401k with his very first paycheck.
How did she do it?
She followed some of the key allowance rules when her children were young.
One of the best ways to inspire money confidence in your children is by giving them regular opportunities to manage their own cash. The Baker children received their allowance money every two weeks with their father’s paycheck.
“As a stay-at-home mom I wanted to teach my kids that every member of the family has value and each one of us was critical to our family's success,” says Baker. “Everyone had chores to do, including their dad who worked and got a paycheck. When he got paid, we all shared in that paycheck because every one of us was a contributing member who kept things going in our family.”
With this sentiment, the allowance was not tied to chores, which is actually a good way to distribute an allowance as the negative consequences of not completing your chores won’t lead to further damage to your own financial education. If your child is choosing to deny themselves the ability to handle money on a regular basis by opting out of the dishes, they’re also unwisely and perhaps unwittingly denying themselves the opportunity to learn positive money habits in their youth.
Giving Every Dollar a Job
When the Baker children received their allowance, they had some decisions to make. They had to put at least $1 in each of their “Giving,” “Saving,” and “Spending” envelopes. Everything after that was up to their discretion—but they did have to prioritize what they were going to do with the rest of their money.
Talking About Problems
The Baker children were never told how to allocate that extra money, though they did usually put a good portion of it into their “Giving” and “Saving” envelopes. By the same token, their parents did not prevent them from making unwise financial decisions. Instead, they let them make their own choices, making themselves available to talk it out when the consequences of those decisions were negative.
“It was a safe place to fail,” says Baker. “That's why we gave them so much responsibility with their money as young children. We wanted them to make mistakes then so they wouldn't make mistakes later on.”
She recounts an incident when her daughter was in her early teens. She had just gotten a big bump in her allowance to afford her the opportunity to purchase her own clothes. The first couple months with the bigger allotment of cash, she spent a fair amount of money doing things like going to the movies with friends and buying non-clothing items.
A few months in, she found herself needing new jeans. The problem? She didn’t have any money leftover to do so.
“She had to wear the old ones for a while before she got her next allowance,” says Baker. “It didn't kill her and she never made that mistake again!”
Baker counts an inclination towards generosity as one of the many benefits of their allowance system.
“They were excited to set aside part of their money in order to give to others, to our local church or to charities they cared about,” she explains. “They were able to do this in a small way because they had gotten used to the idea of setting aside money for those less fortunate. It really brings me a lot of joy to see that characteristic continue into adulthood with both of my children. They never had huge amounts to give but those small amounts add up when you consistently set it aside. “
The lessons of their youth have certainly benefited the Baker children. Her daughter has had her emergency fund fully funded since the age of 16, and is currently saving for retirement, her first home and a wedding. Her son’s 401k? It’s current balance exceeds $40,000 even though he is only twenty-five years old.
“These things grew organically from having a say over their money from the time they were each five years old,” encourages Baker. “It was sometimes a hassle remembering to give allowance and exhausting to teach them how to handle their money wisely, but it was so worth it.”