Instead of Allowance, Try this “Family Bank” Idea

teaching kids about finances

Wondering if you should be paying your kids an allowance? Not sure what works and what doesn’t? You’re not alone. Talking to kids about money can feel complicated — especially when your own grownup finances aren’t where you wish they were.

My sister Sara has 4 kids a few years older than mine and she’s come up with a financial training system that seems to be working for her family. I asked her to share the details. This is what Sara says:

Incoming funds are a chance for kids to learn budgeting.

Twice a month our Family Bank opens for business. Each child is given a generous amount of money and a sucker from the Bank (me) and then learns to budget the money. Each child takes any money earned on their own since the last Family Bank day, plus the new money received, and splits it into five categories:

10% Tithing
10% Long Term Savings (LTS)
10% Charitable Contributions
50 % Short Term Savings (STS)
20% Spending

Categories help kids learn the difference between long-term and short-term saving.

-Tithing goes directly to our Church.
-LTS is set aside for some future purchase, like college or a house.
-Charitable Contributions goes to something meaningful like rebuilding someone’s house or a tsunami relief fund or to the teacher at school with cancer.
-STS is something more immediate: a video game, a new bike or a baseball glove. Something they want and have to save for, but can be earned in weeks or months not years.
-Spending is stuff that disappears: a movie, a candy bar or a balloon.

We started this plan years ago, and we have stopped paying the older kids who have started babysitting and earning money outside of the home. Happily, the budgeting seems to have stayed in place.

Use this Family Bank activity as an opportunity for all kinds of money discussions.

This has also been a good platform for other money discussions like “Good Debt vs. Bad Debt” or “how and where to use credit cards” or even “getting a higher yield on your long term savings.” Our ten-year-old just asked his dad to explain Certificates of Deposit to him and asked if that is where he should keep his LTS. Which hopefully means the conversations are working.

From what I can tell, it doesn’t seem to matter much what your plan is for teaching your kids about money, as long as there is a plan.

—-

Thank you, Sara. I really appreciate the clear advice. I love hearing about the discussion that have come from this Family Bank system.

Now it’s your turn, Dear Readers. What are your favorite methods for teaching your kids to be money-wise?

P.S. — A homemade budgeting game for teens, and how to turn $100 into $1,000,000.

26 thoughts on “Instead of Allowance, Try this “Family Bank” Idea”

  1. I don’t have any advice, as I’m not a mom yet, but this is probably one of the best ideas I’ve read for teaching children to be responsible about money.

  2. I really like your kid friendly money managing. Besides tithing I was at a loss at what other categories we could use for our still pretty small girls. I will definately bookmark this.

  3. I love this plan. Thank you for outlining it for us. One question though…how early do you begin this system? Do you start when only one of your children is of age? Or wait?

  4. Noelle,

    How much we pay the kids has been adjusted over the years. These days I take their age double it and pay them that amount at each Urquhart Bank. My nine-year-old would get $18 each time.

    This seemed like alot to me but only a small amount is really discretionary spending.

    Also, I expect them to use their money (STS) for things like new shoes, gifts for friends’ birthday parties etc. With these kind of expectations I feel like they need generous amounts of money to have any success (and to have failures).

    Stephanie,

    We started this plan when I had preteens and younger. My older three have all loved it and have learned.

    My youngest has special needs and money and numbers are a hang up for her so we have really slowed the money education for her.

    Play it by ear, you’ll know what your kids need.

  5. To sort of reiterate Stephanie’s question, how old are your kids when you actually start this? My four year old is old enough to want things, but she doesn’t know the difference between a penny and a quarter. How young is too young?

  6. Laura,

    Four would be too young for this plan. I started my five-year-olds on a simplified plan.
    Tithing (10%) and Spending (90%).

    At that age they get a quarter for every year they’ve been alive (a five year old would get $1.25) and only once a month.

    When they are very young I want them to understand these things about money:
    we have to work for it and it can buy us things.

    Ask yourself: what is it I want to teach my kids about money? Figure out what you want your end result to be and work backwards. Can you teach any of those things to your young child? Then create your own program to teach him that.

  7. So, if you make your children buy their friend’s presents, what happens when they don’t have the money to buy a gift? For example, two birthdays/parties in a matter of weeks, so there is no money for the second gift. Would you buy it or do you have them stay home from the party? Not bring a gift?

  8. this is such a great plan! super impressed and inspired. i tend to teach my girlies about money the way i spend it…give as much as you can to the refugees on the corner, and devote the rest on pretty, shiny things!

    must. work. on. this.

    thanks for the idea!

  9. Thanks so much for posting about this! Teaching my children about money is something that’s important to me…my husband and I grew up with wonderful parents but we just never were really taught about money and how to handle it. I love your ideas!

  10. Kate,

    Good question. We’ve done different things with different kids.

    One child (who has the tendency to over extend herself in lots of ways) was offered a “high interest loan” (by me) which she happily took. Paying me back was painful to her but she did it and has never looked at debt the same way.

    Another child choose not to buy a gift but made a huge plate of chocolate chip cookies that he put in a great box.

    Over time they learn there are always unseen expenses lurking (I didn’t learn that until I was an adult). Now they are careful to not spend ALL their Spending/STS money at one time.

    Ultimately, that is one huge lesson I want my kids to walk away with: There are always more things that look good to buy than there is money. We have to make choices.

  11. First of all… Welcome… so glad to have you at Design Mom’s exceptional blog.!!
    My kid’s are grown and I wish I had had a better plan when they were young but… I was so excited to send your post link to my daughter-in-law!!

  12. What a great, simple system. My girls are only 9, 7, and 4 but they already have pretty pronounced “money styles.” One is a saver and one is totally about instant gratification (gumball prizes, etc.) This system will help us define different kinds of expenses too. Thanks!

  13. my question is, when can i start participating in the urquhart family bank so then i can move on up to the urquhart family trust fund?? i am ready for your first deposit. let me know if you need me to give you any forms of id….
    i love the stanley girls!

  14. Wow! My baby really is too young to receive anything (besides her Lucky Money at Chinese New Year)…but I love this idea!

    I’m moving to the East Coast soon…if I live in Connecticut, will I be as cool as you?! hahaha

  15. I've had this post bookmarked for quite some time, and would really like to start implementing it. Two question please…were your children expected to do anything to earn the money (did they ever not receive it? And where did they put the money once they earned it? Envelopes? Jars? A wallet? I loved the red banks that they had when I was little with 3 compartments for tithing, saving, and spending. I've found similar ones, but they all just have 3 compartments. Five would be awesome! Or even 4, plus a wallet. :) Thanks so much for your insight!

  16. Sarah, I like your 5 part break down and, in particular, the distinction between short term saving (a specific near term “want”) and long term savings and I think it’s smart to keep that separate from general spending. I’ve been lumping those two together with my kids (with just Spending/Saving/Giving), but I like your way better.

    I like to let each of the kids decide on the percentage breakdown – it’s always an interesting conversation and teachable moment.

    Tracking the money in a physical piggy bank or envelope is challenging and doesn’t scale very well. A cashless system – whether online or using a paper & pencil ledger – makes that a lot simpler.

  17. Barbara Smith

    Hi, gang,

    As Bill said, a cashless system makes it easier to manage allowances. I’ve recently started using one online, via a program called KidsCash. Basically, I have it set up to take a certain amount from me each month via PayPal (very secure!) and that is deposited into each of my children’s KidsCash accounts. From there, the kids can decide how much they want to save, how much they want to spend immediately in the marketplace (tons of toys, video game credits, and iTunes cards), and how much they want to donate to charity.

    Check it out and let me know what you think!

    Barb

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