Father Sez

Google Images 

Since January this year I have been giving weekly allowances to my younger children.  

Abang, our only son who is 13 and his sister, Nana, 12 years old both get allowances, whilst the youngest Ain, 9 years old has been told to wait.  (I thought she was a little too young.) 

Abang and Nana also have to write up their receipts and payments in an accounts book which they have to show me each time they receive their allowance. 

And they have to save at least 10% of their allowances. 

On the 2^nd June, all four of us went to the bank and banked in their savings into their accounts. (In Ain’s case, I contributed some money. I was a little surprised when she reminded me about the promise I had made on her savings.) 

Now we have changed the allowance interval to monthly for Abang and Nana. They still have to keep their accounts books updated, and save at least 10%.  

Ain has also asked for an allowance and an accounts book. She has been started off on a weekly allowance and I have showed her how to write up her accounts. She surprised me with her understanding of how the spending should be done. I think she will be a frugal spender.  

These are the money lessons we have learnt over the last 5 months. 

a)    The boy “misplaced” his accounts book. As such I could not sit with him and reconcile the amounts shown as “savings” in his accounts book and the amount banked in. This upset me a bit. A new book has been bought for him to start the monthly accounts, and he has been given a “lecture” on not to misplace the book again.  

b)    Nana, on the other hand, went out with her friends on an outing and spent almost all her savings. She now fully understands how easy it is to spend something that took so long to save up. Her record keeping is meticulous and, I must say, excellent.  

The lessons may not seem much, still, my children have learnt more in the past 5 months than in all their lives before this. I have some regrets about not starting this allowance system earlier, but better late than never, right?

At least some hard money lessons are being learnt now and the stage is being set for the “always earn more than you spend” talk with my children.                

This issue has been argued and debated to death in the pf blogs.

Nevertheless it’s an important topic and I am sure sooner or later every one of us will have to make a similar choice. 

Well, my second daughter was recently at this cross road. 

My elder two girls both have, what we call in Malaysia as investments in Amanah Saham Bumiputra (ASB). This is a type of unit trust managed by a Government owned body and the principal and annual returns are guaranteed by the Government.  

It’s hence not surprising that banks freely give out loans to people to buy these investments. After all, these unit trusts are sovereign rated. So since they turned 18, my two elder girls have loans and investments in ASB.  (The yearly returns are sufficient for the yearly repayment and I do a small top up yearly. My wife and I hope that this will help them to continue and maintain the savings habit only they start their working lives.)  

Recently my second girl received some money and the issue of using the money for investment or paying down loans came up. 

For me, it was simple.  

I showed her the great article written by Mighty Bargain Hunter under the heading of “How strong is your piggy bank?” 

Azah went through the story and decided she wanted to keep 50% of the money in a titanium-reinforced Kevlar® piggy bank inside a force field. That is to pay down the ASB loan. 

The balance will be kept in a steel piggy bank by buying additional ASB units. 

I am happy with the choices she has made. What do you think?

Sometime ago I wrote about our family’s goals and experiences on allowances for the younger children.  

There appear to be differing views on kids’ allowances. NCN prefers to let the children earn their allowances. This would help in teaching responsibility and build self esteem. Wise Money Decisions has an interesting twist, and he also writes about another family that practices the free market system on allowances.  

There are so many articles on this clearly popular (rightfully so) issue. For some examples you can go to this site. 

All my wife and I want to achieve is for the kids to understand money, learn how to live within a “budget”, save some of their “earnings” and keep reasonable records. Achieving this woould be enough of an accomplishment.  

The primary rules of our system are :- 

a)    The allowances will be paid every Sunday,  

b)    It’s currently only for our boy (14 yo) and 4^th girl (13 yo). The youngest may be getting hers from next year, 

c)     The children have to keep accounts of their receipts and payments, 

d)    At least 10% must be saved and put into their piggy bank, 

e)    I have promised topping up their savings at year end. 

We have not tied the allowances to any chores and neither have we decided to make any deductions for mistakes, “felonies” etc. 

So far the system seems to be working well for the girl.

The boy on the other hand seems to be spending nothing. He also seems to have no interest in the allowance, and the whole amount is just being socked away in his piggy bank.

At first I thought it was because he had a stash hidden away, cash gifts from us and his uncles and aunts for the festivals. His mother collected the whole amount and banked it into his savings account. Still no change in his spending habits.  

When I talk to him, I get the famous teenager monosyllabic answers.  Last week he told me he wanted to change the accounting system. Which he didn’t. This Sunday, both of  went over the book keeping required. He had also spent some of his allowance during the past week. Maybe now we are getting somewhere.

I have told both of them that the allowances will be changed to a monthly one with effect from 1^st June. This would allow them to budget over a longer time horizon and allow me to start talks on salaries, savings, budgeting and such. 

And I know just the way to do that, thanks to D4L’s idea of weaving an interesting story into these lessons.

It’s been 4 months since we started giving the children a weekly allowance.  In November 07, Abang (14) and Nana (13) signed an agreement with their mother that:

a) They would keep weekly accounts of how they spend their allowances,

b) Save at least 10% of their allowances.

So far this exercise is going well. They show me their accounts book each week (the entries are neat and tidy) and I give them the next week’s allowance. The amount they note as having “transferred to piggy bank” is also noted in a separate page, so that it can be compared to their bank books later.

Bank savings accounts have been opened for all three younger children.

I have not explained to them the concept of “paying themselves first”. Though they save the money weekly, currently they are doing so just because I have told them to.

I have reviewed this process and now propose to tweak it as follows:

a) Based on advice from Lynnae in her installment of the free e-book Money Matters for all Ages, I am going to change this weekly allowance to a monthly one. Hence it becomes more like a salary. The kids will learn how to stretch this salary for a month and also learn to budget.

I am setting 1st June 08 as the target date for this.

b) They have to learn that just whining and complaining will not get them any extra money. They have to do additional chores in the house and negotiate additional payments for this. So far only Nana has earned extra money and that, too, only once.

c) They have to pay for their own special expenses like presents for their friends’ birthdays and stuff like that. I have to elaborate on the frugal ways that are available to come up with a present that is memorable and yet very light on their budget.

This Friday, their first term holidays start. It’s only for a week. Now that there is no cable TV in the house, they should have a little more time. I plan to take them out and have a chat with them on :-

- what are salaries and wages,

- how do people spend their salaries

- what happens when expenses is more than income,

- the concept of budgeting, living below our means and paying ourselves first.

d) I’ll ask the youngest girl, if she is ready for a weekly allowance. So far she has not asked for this. She still receives money daily from her mother for school.

Well, I certainly don’t expect my three musketeers to enthusiastically grasp this talk. I’ll have to take them out to a place they’ll enjoy, soften them up a bit and try. At least I get a chance to talk to them at an earlier stage in their lives than their two elder sisters.

I’ll keep you posted.

Note: The picture is from Google Images.