Wednesday, March 29, 2006


While running a mindless report this morning, I was thinking about how to instill good spending habits in my children while still allowing them to make choices about spending. Here is an idea I came with.

I have no idea how we will eventually handle our children's allowance. I don't know if the "you must earn it" model or the "you can have some money." model works better. But my idea works with whatever the system is.

Let's say that, at age eight, David gets an allowance of $5.00 per week. Jaime and I work out with him ahead of time a criteria for "wise purchases." These are things that are healthy, have long-term value, are charitable, etc. Apples over candy bars, books over video game, church over comic books, etc.

He gets his $5.00 on Sunday. He can spend that on what ever he wants to, no questions asked (in accordance with other rules, like "no cigarettes, guns, etc."). However, the following Sunday, he can show whatever receipts that he wants to. For every dollar that he spends on wise purchases, he gets another $0.50. Additionally, we review his savings account. For every net increase of $1.00, we match with a dollar. So, he has the potential to get as much as $10.00 in a week, if he were to save it all. If his net savings decreases, then, like his allowance, no questions are asked. But he can show us the receipts and get the $0.50 match for wise purchases.

Let's say that his savings balance last week was $20. This week it is $25.00--he saved his entire allowance. So, he gets another $5.00, which he spends on pop-rocks. Then, the next week the balance is $15--he withdrew $10. So, he doesn't get any extra match-money for saving. However, he can present his receipts. If he spent that $10 on a wise purchase--then he gets the $0.50 match--$5.00. If he spent all the money on comic books, then he doesn't get a match.

We could put a cap on what we match each week so as not to bankrupt us but I don't think it would be necessary. If we didn't, then he could get tremendous rewards. Let's say he wants a $200 bicycle that he and I have researched to be quality. He starts out with zero savings. He gets his $5.00 the first week,which he saves. The next week, he gets the $5.00 match, plus the $5.00 allowance--$10.00, which he saves. So the match the next week is $10.00, plus his $5.00 allowance--$15.00, which he saves so his match the next week is $15.00, and so on. On the sixth week (according to my calculations), the match would be $30 and would bring him to $100 Since we have determined that the bicycle is a good one, then it would count as a wise purchase, so I would pay half. So, with diligent saving for six weeks--an eternity to a child--he could have a $200 bike.

A revision to handle tithes: I would not want to reward him for saving rather than tithing, so there would be a 90%-per-week cap on the savings match. However, tithes would count as a wise purchase, eligible for the 50% match. This means that he is really only giving 5%, but it is a start. Maybe we would have an entirely different way of encouraging tithing.

All of these are made-up numbers, the amounts and matches may vary. Some rules would have to be put in place for veto--for example, I would not allow him to buy certain brands of bicycles for safety reasons. Additionally, there would be disputes about what is considered "wise," so, we would have to keep someone like Jones Day on retainer to handle disputes.

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