So you decided how much you’re going to pay your kids, what it will be based on, and how you’ll have them divvy up their money. But what about the practical here – how exactly are you going to pay them?
After all, if you’re like me, you may or may not have cash for an allowance payment on you every week. Or maybe you always have cash on you, and the easiest thing will be to hand it to your kids every Friday. It could be the allowance is the same amount every week, and so an automatic transfer into a kids account will help you be consistent. Or maybe you want to pay per chore, meaning you need a more flexible option.
Today I’m going to cover the major methods of paying allowance, talk about some of the pros and cons of each one, and point you at some helpful sites to get you started.
Cash Is King (Or Is It?)
Cash just can’t be beat for little kids, who love to feel and touch their money, as well as see it pile up in the piggy bank. Intangible money management can be a hard concept to grasp for a child who’s just learned the difference between a $1 and $5 bill, and so cash can be the way to go.
If you’re one of those people who always carries cash on you, this can be easy too! Every week you just take some money out of your wallet and hand it over, helping your child divide it into those spend/save/give categories we talked about earlier.
The disadvantage of cash is that it’s the past – not the future. That is to say, people used to spend much more using cash than they do today, and paying by debit/credit or smartphone is only growing in popularity. By the time our children are adults, it’s more than likely this trend will only have increased. So although cash can be a great tool for younger kids, and to help kids really see, feel, and experience the reality of spending money, eventually you might want to transition to a virtual payment method.
Kids Savings Accounts
Now, when I was a kid, we had these passbook savings accounts from our local bank. You would walk into the physical bank, hand the teller your passbook and your money, and they would print in the book just how much you have now. Oh, and they would also print out just how much in sweet, sweet interest you earned. Then you would get a lollypop and head on out. All in all, it was a pretty fun experience.
Nowadays they still offer those passbook accounts, but honestly they pay almost no interest. Unless you’re chipping in a bit of manual interest from the bank of mom and dad, they’re not likely to learn the value of keeping money at the bank. But there are online kids accounts you can use to automatically transfer their allowance money.
This is the method I currently use. I have some savings accounts with Capital One, and they have kids accounts that earn 1% interest. It’s not the highest amount on earth, but it’s really convenient for me. I have automatic transfers every week into their accounts, for their set allowance amounts, but I can also really easily move extra money into their accounts using the app on my phone. I always have my phone with me (unlike cash…), so it takes seconds to do a transfer or check their balances if there’s something they want to buy.
It works in reverse too – when they want to buy something online, I buy it with my credit card and then transfer money out of their account and into mine to cover the purchase. Since my two boys receiving allowances right now are older (16 and 12), they often want to buy something from Amazon or from Steam with their money. This requires my money – but soon I’ll be moving onto the third option, which should give them some more spending freedom.
For more on different kids account options, be sure to check out this article.
The advantage of this is that it’s free and easy. I don’t pay any account management fees, unlike some of the options I’m going to cover next, or any fees at all for their accounts. In terms of ease, I can check their balances, transfer money to/from, and see their accounts in just minutes. Heck, I even have opened CD’s with Capital One under their names with their longer-term savings, and I can see those in the app too.
The disadvantage is that this is a less tangible way of saving, and so might not work as well as cash for younger kids. It also can be a bit tricky if you want to use three separate account for the three categories (spend, save, give) versus have them all together and manage them yourself. All in all, though, this is a good option for ages ten through teen.
Kids Debit Cards
There’s another option sweeping the personal finance world when it comes to kids and money – kid debit cards.
I’m not talking about a real checking account that you go to a bank and open with your kid. Instead these kids cards pull from the “Bank of Mom and Dad” to create a financial family ecosystem of virtual money.
In most families, kids will see Mom and Dad buying things with their own debit and credit cards. Kids will also have their own smartphones at increasingly young ages – the average age to get a smartphone is now ten. This means that combining debit cards with a website and/or app can be a great stepping stone between the cash of young childhood and adult accounts of near-adults.
There are three major companies offering these cool kinds of cards – check them out and see if any of them would work for your family.
Greeenlight has an app for both parents and kids, offers easy management of weekly/daily chore systems, and allows both parents and kids to easily manage their money. Remember how I suggested you might want to use the bank of mom and dad to give your kid some compound interest? They offer that. They also have automated allowance functionality. The cost here is $5 per month for up to five family members.
FamZoo is another awesome option in the prepaid card space, letting you open cards for your kids and manage money through the bank of mom and dad. Payment for chores? Spend/save/share accounts? Parent paid interest? Savings goals? Automated allowances? They have it all, and more! The monthly cost is $5.99, but if you buy for a longer period of time, your cost goes down – to as low as $2.50 a month.
Current is another option aimed at the teen market. It has the standard options – payment for chores, allowance, spending controls, etc. – and it’s $36 per year, per teen. So if you have only one teen you want to have a card, it can be a good deal, but with more kids you might want to look into other options. The cards do have a cool design, though.
Go Henry is another option in the same space. At $3.99 per child per month, this again might be a good option if you have one child, but not so much if you have a lot of them. The personalized card creation looks fun, and it looks like they have many of the same features as the other cards.
Maybe I’ll have my teen give all four of them a shot and record a video on what he thinks of them. If you’d like to see this, comment down below & I’ll see if I can convince (aka bribe) him to do it.
Real Savings And Checking Accounts
Eventually, you’ll want to transition from “kids accounts” to real checking and savings accounts in your kids name. A good time to do this is when they’re a teen and get their own jobs, where they’ll be receiving a real paycheck. They’re going to need to learn to manage money in the “real world”, which means learning how savings, checking, and automatic transfers work.
This is the start of letting go, and letting them grow up. You’re no longer in charge, hovering over their jars, reminding them that they really wanted that big toy and so they shouldn’t spend their money today on frivolous stuff. You’re going to need to let them manage their own money, and trust that the lessons you taught them when they were younger will carry through into near adulthood.
Remember. though, until they’re eighteen and a legal adult you’ll still technically be the custodian of the account. This means that even though you’re letting go, you still need to keep an eye on what’s going on – making sure the account doesn’t get overdrawn, teaching your kids how writing checks works (even though they probably won’t actually write a check until they’re an adult), and to ensure that the accounts remain in good standing. After all, you don’t want your own or your Childs standing with Chexsystems to suffer because of teenage mistakes.
What Method Is Best For Your Family?
All in all, the best method for your family depends on (1) your childs age(s); (2) what method is easiest for you to stick with; and (3) what suits your families typical spending style. What works for you today might change in a year, two, or ten, so be sure to check in often on what other options you might want to explore.
I’d love to know more about the method you’re currently using, and what you like/dislike about it. Also, if you’re interested in trying something new – what are you thinking about? Let me know in the comments.
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