Allowance Best Practices for Teens
Teens are usually ready to assume responsibility for more of their own personal spending and to receive their allowance electronically. Establishing annual amounts (“buckets”) for broad categories of spending such as clothing, meals outside the home and team fees can go a long way towards giving your child experience with the crowding-out effect of bad decisions…spend too much on clothes and you can’t go to that concert with your friends.
Teens are ready for virtual allowance distribution, via automatic bank deposits or other tools such as those that FamZoo provides. Online billing and payments are increasingly becoming the norm, so some experience executing them safely before going off to college can also be helpful.
As we discussed in our first allowance post, the third decision of Allowance Best Practices is to decide when current methods will be assessed for required adjustments. This third step is critical for Teens in their first year operating with annual allowance amounts. Trust us when we tell you that Teens will not always spend wisely when they get their first bigger taste of financial independence. So monitor their spending from a distance and be prepared to adjust the frequency of disbursements as a way of helping them stay on track. What you want to avoid, is topping up the agreed-upon annual amount until the end of the year. Bailing your kids out of overspending when they still live with you is the surest path to having to provide them with “Economic Outpatient Care*” when they become adults.
Consider making Gift Surveys a requirement for any expenditure in excess of an agreed-upon dollar amount. Gift Surveys were specifically designed to ensure that kids only ask for – or purchase – what they will really use and appreciate; they are a tool for parents to give their kids the best gift ever – the habit of thinking before buying. There was a haunting series of podcasts making the rounds last summer about a 22 year old woman in Georgia who mismanaged a fully paid college fund to the tune of not having any money left for her senior year. She blamed her parents for not teaching her how to budget and plan better. While this young woman portrays an extreme example of “allowance gone wrong”, her family’s experience reminded us of the adage: “If you don’t have time to do it right, you must have time to do it again.” After a lot of back and forth Kim’s parents co-signed a loan to replace the spent funds which allowed her to return to school. Gift Surveys might have prevented Kim from over-spending in the first place!
*Economic Outpatient Care is a term coined by the authors of The Millionaire Next Door. It refers to the giving of significant or consistent gifts of money to adult children in an effort to bridge lifestyle gaps. It has been shown to reduce overall financial wellbeing on the part of both the giver and receiver.