rocket finance

My kid’s allowance plan

My parents were good with their money. They worked hard and lived frugally, and even gave us an allowance from time to time. However, they were either unknowledgeable about financial issues beyond the basics or didn’t think them important. The bottom line is that they never spoke about investing, mutual funds, IRA’s and other long term investments. It is also possible that they never had two dimes to rub together, much less put into any type of investment account.I am determined that my kids have a firm grasp on how to get the most out of their money at a very young age. So, beginning in January, the Rocket Household will be introduced to the wild world of personal finance. I have already started ING accounts for all three of my children, but it is time for my three year old and four year old to get a more hands-on education regarding money. 

I would love to give them $3 or $4 a week, but we can’t afford it right now. Furthermore, if allowances were a weekly occurance, there might be times when I don’t have the cash on hand to cover the allowances and I want to make sure that we follow through with whatever system we start. A weekly allowance might be biting off more than I can chew right now. I also wanted to tie the amount to their ages.

So here is our set-up for now:

1. Allowances will be given on the first of every month.

2. The amount of money will correspond to their age – a dollar per year. I am hoping to be able to afford more as time goes on. $3 and $4 once a month does not sound so bad now, but when they are 10 and 11 and their brother is 7. . . things might be a bit more challenging.

3. Ten percent will go to our church. When they are older, they will be free to change the percentage for well thought out reasons, but 10% is a good place to start this habit.

4. Fifty percent will go into their online savings accounts. At some point in the future, I will encourage them to invest a portion of this money.

5. The remaining forty percent can be spent or saved for something that the child wants. I am fully aware that some of this money will be wasted – but the earlier the lesson of buyer’s remorse is learned, the better. Gift giving and charitable giving will come from this percentage.

6. All other money that is given to them or is earned will be divided up according to the same percentages.

7. When they have accumulated enough money in their ING accounts to meet the minimum requirement in our state ($250), we will open college savings accounts for each of them. (If you request an ING referral from one of them, they will make their goal much more quickly. Each of my daughters have a lot of referrals left.)

8. We will use the PF Blogosphere’s favorite bank – the Savvy Pig . . . especially since my parents just happened to give us two of that particular bank – after attending a retirement seminar last month . . .