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Nickel recently wrote about how he’s tweaking ^[3] his allowance system ^[4] for his two kids (seven and five) and I think it’s a very interesting read. All this was spurred on by JLP’s article on how he invested part of his children’s allowance in Microsoft ^[5]. The point of all this is that you want to teach your kids about finances ^[6] before they have to brave it out into the real world (and rack up thousands in debt). This is where I think folks can benefit the most from the Personal Finance Blogger community – getting an inside look at how other people do things, without having to ask!

I don’t have any kids so I’ve never put too much thought into what the allowance policy would be but I know my first thought wouldn’t have had aspects in either of their plans and would’ve mirrored my own childhood plan – no set weekly allowance, you were paid for performance (chores, grades, awards, etc). This then opens the cans of worms where people say kids should want to perform well because it feels good, not because they are being paid… well, to that the relevant response is that people work hard primarily because they want to be paid (work satisfaction is still important).

Anyway, regardless… These are the two things I loved about their plans:
1) Tax – JLP has a 10% tithe, Nickel forces a 10% donation. This mimics how taxes work in real life and, in Nickel’s case, instills a sense of civic responsibility at an early age (very admirable).
2) Forced Savings – JLP forces 50%, Nickel readjusted his from 60% to 20%. With recent discussion (and not so ^[7] recent ^[8] discussion ^[9]) about how folks aren’t saving enough money.

The forced savings means you can show them their bank accounts (adding an account on ING is really easy), they can see their interest accruing, they can decide they want to buy a CD or some stock, and they get to learn about personal finance (the ultimate goal of the allowance idea anyway).

All things being equal though, I’d rather be JLP’s kid (really though, I’d rather be Madonna’s kid ^[10]…) though because the allowance calculation appears to be $1/yr while Nickel’s awfully stingy only giving out HALF of that! I’d suggest to Nickel’s kids that they should brush up their résumé’s and see if they can negotiate a raise or something.

Do you have kids or did you yourself have an innovative and educational allowance policy?