Sarah and I have a laid-back policy when it comes to how our children spend their money. We regulate their allowance to a certain extent by requiring that they give a certain amount to charity and save some for the future (as discussed here). We also require that they put aside a little for a personal savings goal, usually an expensive toy, but as for the rest? They can spend it as they wish.
Our youngest child isn’t really old enough to understand how allowance works. We just give him a few quarters for his piggy bank each week.
For the others? It’s evolved in an interesting way and goes through a cycle.
At the start of a cycle, they’ll each identify a goal that they’re saving for. Let’s say my son names a game for his 3DS that he wants and his sister names a particular art item that she wants. We look on Amazon and a few other websites so that we know what it will cost.
At that point, they simply don’t spend anything. They don’t ask for things at the store (unless we tell them that they can pick out a food item or something). In fact, they barely care about the allowances for a while. They just push all of their “spend” and “save” money toward that goal.
After a month or two, they’ll start asking about their allowance and their goal. “Have I saved up enough yet?” they’ll ask.
When the answer is “yes,” they immediately want to spend that saved money, but here’s the catch: most of the time, they no longer want the item they were saving for. They’ll go to the store, find that item… and then decide that they really don’t want it. Instead, they’ll quickly find something else for the same price that they really want instead.
(I should note that this isn’t always true. My son saved up for his portable game console and he kept that focus all the way through the savings process.)
So far, Sarah and I have been fine with this. After all, they’ve been saving their allowance for a month or two and they’ve put some of their allowance away for the future and some for charity. What more could we ask for?
The part that troubles me is that they’ve repositioned things so that, rather than a weekly allowance, they seem to get a “once every two months” allowance and then they spend it on a single large item. Does this really teach them saving at all?
They’re still essentially being impulsive spenders. Even though they’ve set a goal, when they reach that goal, they choose to use the resources impulsively.
I doubt that they’re really learning a true savings lesson here. I think they’re learning how to control short-term impulses, since they never want to tap their allowances for small treats, and that’s a good thing.
What I’m having a difficult time deciding is whether or not their savings “goals” are actually real. It feels like when they articulate a savings goal, they’re just naming something impulsively, and that impulsiveness just reappears when they reach that savings goal.
Should I expect more from an eight year old and a six year old? Should I be satisfied with the small impulse control that they show by leaving their allowance alone? Is it unrealistic to think that a child’s savings goal will be the same in two months? At the same time, is there anything that I could change about the situation to help them learn a different lesson?
My conclusion? The only change that we should make is that we should change how we shop for the big item. If they want to switch items, we’re going to not allow them to buy it immediately. Instead, we’ll simply make them think about it for a week. If they still want that new item after a week, then they can buy it.
Why do it this way? First of all, I can’t really punish them for changing their mind about the things that they want. I do it myself. I’ve saved up for things even in the last few years and found that I changed my mind about it when I had actually saved enough money.
Second, and perhaps more important, this new approach should teach them a version of the “thirty day rule.” The idea here is that if you’re making a major purchase, you should wait thirty days before buying it so that you have the time to shop around for a better deal and so you can make sure you really want/need this item. If you still desire the item after thirty days, then you can buy it.
It all boils down to impulse control. If I can truly teach my children to keep their money in their pocket, even in the face of temptation, then I’ve helped them with a major hurdle of personal finance.
I think I’m happy with that.