Teaching Kids Four Money Principles

A Twitter listener asks how Dave feels about an allowance for kids. Dave doesn't like the term "allowance" and prefers using commissions instead.

QUESTION: A Twitter listener asks how Dave feels about an allowance for kids. Dave doesn’t like the term “allowance” and prefers using commissions instead.

ANSWER: We never gave our children an allowance because I don’t like the word. We had our kids on commission. Commission is, “Work, get paid. Don’t work, don’t get paid.” It’s kind of like the real world. Allowance sounds like welfare to me. I just don’t like the word. Words are powerful. You have to be careful with them. We called ours commissions, and if you didn’t do your work, by the way, you didn’t get paid. That’s how this works.

There are a couple of things you’ve got to remember about that. Number one is there are some things you do just because. That’s a parent thing when you can say, “Just because.” “Just because” means I’m larger than you, and I can make another one that looks just like you, so you’re freaking going to do this chore because I said so. That’s how this works. Just because. In other words, you’re going to clean this. You’re going to help your mom in the kitchen. Why? Because you love your mother. Even if you don’t love her much right now, you will learn to love her as you fear your father.

Seriously, some things you do just because you’re part of the family. But I don’t want all the chores to be that way. I want some chores to have money attached to them because there are four things you must teach your children about money. If you do not teach your children these four things about money, they will end up living in your basement.

Number one, you must teach your children to work. Eating two bags of Doritos and spending all day in the chair playing Nintendo is not work. There is no future for you if your only skill set is gaming. There’s a slim possibility you could become a game software writer, but even then, you would have to get up out of the recliner and study software—not just gaming. The point being you can win World of Warcraft 46 times and nobody cares if that’s on your résumé when you grow up. It’s a conversation point at best, and it might not be a good one of those. Teach your kids to work. Work, get paid. Don’t work, don’t get paid. I’ve met 54-year-olds who don’t get that.

Once they work and they do the job and you pay them—the dollar amount that’s associated with that particular chore—then you create teachable moments. They have money in their hands that they earned. Now we teach them to be little savers. We have a savings envelope, and we teach them to be little givers. The weird thing is you don’t have to teach kids to give. They naturally want to give—most of them. There are very few little kids who don’t want to give. You refine their giving, and you teach them about wise giving—not enabling but helping people, giving them a lift. We’re going to teach them to spend their money that they earned wisely.

We’re teaching kids to do four things: work, give, save, spend. We have three envelopes that say “Give,” “Save” and “Spend” on them, and we have a little dry-erase board for the refrigerator that says “Commission Worksheet.” When you do your chores, we check it off and that means you get your money for that. If you don’t do your chore, you don’t get paid. That’s how this works.

That’s how you start. We put the thing together in a great little box of teaching aids called Financial Peace Junior. There’s all kinds of stuff for teaching kids about money on our website. We’ve got books and all kinds of good stuff in there for all ages.

That’s how you get the thing started. I believe in paying kids for some things but tied only to work. I don’t use the word allowance. I want to create teachable moments. I’m concerned that they actually handle money that they, in some sense, feel like they earned. Then we get to have discussions about how that works and what you do with it and how much control over your life you have and all those kinds of things. It’s called parenting.