Should you give your kids an allowance for chores?
“NOOOOO!” … that was our first response.
But years later we reconsidered this decision because we discovered the 5 / 50 / 500 money rule.
There are rules that govern our lives, our world, and the universe. There are also rules that govern the earning, saving, and spending of money. Knowing how to operate within the rules usually means success and a more peaceful existence. Violating the rules has the opposite effect.
Preparing your child to live a financially independent life may not be on the top of your to-do list. But if you knew the impact of the 5/50/500 money rule, you’d want to get started today.
Here’s how we first learned about this rule.
TABLE OF CONTENTS
- 1 What is the 5/50/500 Rule?
- 2 Should I Pay My Kids an Allowance for Chores?
- 3 What Happens If I Give My Kids an Allowance for Chores?
- 4 Should Kids Do Chores?
- 5 How Much Should You Pay Kids for Chores
- 6 Should Kids Do Chores or Have Part-Time Jobs?
- 7 Helping our Kids Earn Money
- 8 Helping Our Kids Manage Money
- 9 Helping Kids Learn to Plan
- 10 Learning about Debt — The Value of Saving—the Dangers of Debt
What is the 5/50/500 Rule?
Many years ago, Steve worked as a graphic designer at a printing company. It was there that a salesman taught him an important lesson about making type changes during the three-step printing process.
Step One: First, a typesetter would print out text on photo paper. Then a paste-up artist would paste the type, any borders, headlines, and/or photos on an artboard. The work would be proofed by someone else in the office and then sent off to the printer.
Step Two: Next, the printer would put the artboard on a reproduction camera and take a picture of it on negative film. That film would be “stripped” or taped to an orange carrier sheet or flat. Finally, a blue-line proof would be made from the negatives, and then a metal printing plate would be burned.
Step Three: Finally, the printing plate would be put onto the press and the actual printing would begin.
The print salesman told Steve to make sure he proofed the typeset copy carefully because catching an error during Step One would cost only $5 to fix. A typo caught in Step Two would cost $50 to fix.
The salesman paused, furrowed his brow, and said …“But if you find a mistake once the job is on the press (Step Three), the press will need to be stopped, the pressman will be standing around with nothing to do, the print shop schedule will be delayed and that will cost you around $500 an hour.
So please be sure to proof your work.”
The 5/50/500 Rule of Life Explained.
Most of life’s lessons have an escalating scale of cost. For instance:
- A toddler who throws a tantrum may need to be put in timeout for 5 minutes;
- While a teen throwing a tantrum at school may receive 50 minutes of detention.
- But a young adult who loses his cool and starts a fight may get a criminal record and 500 hours of community service.
The cost of a lesson un-learned will always increase with time.
Should I Pay My Kids an Allowance for Chores?
When we first started having kids our answer was a unified and resounding “NO.” We’re not willing to pay our children for doing something that is a common part of family life.
We didn’t get paid for dusting the house, doing the laundry, washing the dishes and putting our things away … so why should we pay them?
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A Change in Thinking
But, over time we came to see some flaws in our reasoning.
- Money Skills: Our kids needed to learn to handle money.
- No Income Potential: Our kids, at 5 or 6 years old had no income-generating potential. They couldn’t work a job for an outside source and we certainly weren’t going to just give them money for doing nothing (that can create an entitlement mentality).
- Money Skills Need to be Practiced: Kids can’t learn a skill if they don’t get to practice it consistently (like every week).
We decided that we wanted our kids to learn money management skills as young as possible. And by giving them chores to do each day with the ability to earn money for doing them, we found a way for them to have a regular income.
Even though it was a small income. And because they had a small income, they were given the opportunity to manage that income.
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The MoneySmart Kids System
We developed a Money Training System to teach our kids to earn, manage, spend and give their own money. We started it in 1995 and allowed our kids to earn money from us until they got their first paying job outside of the house. Sure it cost us some money – but in truth, it saved us a ton.
They didn’t ask us for money to buy $100 gym shoes, or $200 blue jeans because they realized how long it would take them to earn that money. Our kids & money system allowed them to earn their own money. Some of this money was used by them to buy their own clothes (starting around age 9 or 11).
This reality spending worked amazingly. Eventually, our kids paid for their own camp expenses, Christmas gifts for siblings and friends, cell phones, computers, auto insurance, cars, and college educations.
So should you pay your kids an allowance for chores … now we say “Yes.”
What Happens If I Give My Kids an Allowance for Chores?
Remember we talked earlier about the increasing cost of an unlearned lesson?
Well, if we don’t teach our kids to earn and spend their own money, we’ll need to keep paying for the ever-increasing costs of what they need or want. This may not seem too bad when all they want or $1 trinkets or $5 toys, but watch out.
The price tags will start to increase really soon. Your kids will be learning a lesson. And that lesson is that mom and dad will pay for anything they want.
And in this instance, the cost of the un-learned lesson is borne by the parents.
There are five stages to the 5/50/500 money rule:
- The $5 stage — ages 0 and 5
- The $50 stage — ages 6 and 11
- The $500 stage — ages 12 and 17
- The $5,000 stage — ages 18 and 22
- The $50,000 stage — age 23 and beyond
In the $5 Stage, each of your toddler’s wants costs you $5. Repeatedly footing the bill for his whims reinforces his thinking, “Every time I want a toy, mommy will buy it for me.” If you don’t deal with that attitude now, you will enter the unending escalation of the 5/50/500 money rule.
Not teaching your kids to manage their own money when they’re young — at the $5 stage—will ensure that the price tag keeps increasing. Some teens expect their parents to buy them $50 sneakers, replace their $500 cell phones and give them a new car.
And how about those college freshmen who call home looking for a $5000-credit card bailout? Or a car repair after an accident. Mom and Dad receive the call and pay the bills.
Some 20- or 30-something kids, who can be financially irresponsible, come back to their parents and beg them for mortgage bailouts, custody battles during a divorce or any number of things. These stories are more common than you realize. That’s the $50,000 stage. This is really bad news.
When Parents Need to Provide Financial Help
Of course, there are times that we as parents need to be a safety net for our adult kids and grandkids. Such as debilitating medical issues, abusive marriages and more. Just make sure you really know how to help in these situations without creating an unhealthy dependence with your kids.
The upside of knowing the 5/50/500 money rule is that you can immunize yourself from the consequences by training your kids to stand on their own two financial feet. Following are five essential financial skills for kids so they don’t regard you as their lifelong, personal ATM.
Should Kids Do Chores?
Yes, of course, kids should be required to do chores.
Chores teach them responsibility.
Learning to take the trash out, vacuum the floor or clean a window are skills every homeowner will need … unless of course, they are wealthy enough to pay for someone else to do this for them.
But chores are also a wonderful avenue for kids to learn the value of work. This is why we gave our kids an allowance for chores that they did.
And by learning to be responsible, diligent, and thorough, working for mom and dad, they very likely will do the same thing for their employers. This happened with our kids.
They knew how to work and they knew how to work hard. And they knew that if they worked hard, they would be rewarded. Each of our kids was highly valued by their employers and were the first ones called when another employee called in sick.
The video below has interviews with us and three of our kids. You’ll see the results of our MoneySmart Kids training system. Our kids are older in this video, but they have been managing their money this way for at least 10 years.
This video has interviews with us and three of our kids. You’ll see the results of teaching them to work for their allowance.
How Much Should You Pay Kids for Chores
Some experts say that a weekly allowance should be $1 for each year of age. Others say to pay a predetermined amount for each chore performed.
We came up with an amount based on age, chores, and other tasks done and an expectation that the child would pay for some of their own expenses with the money.
Should Kids Do Chores or Have Part-Time Jobs?
Many pre-teens and teenagers view work as an interruption to the unending leisure activities (playing games, texting, Facebook-ing, and videos) of childhood. Every teen needs to know how to work for an employer and how to do daily household-management tasks.
Housework isn’t fun, but it is necessary. Kids need to know how to do laundry, sweep and mop a floor, vacuum, dust, change a light bulb, change their sheets, make a bed, fix a leaky faucet and retrieve jewelry from a drain (we just worked on this one with Abbey). We require our kids to help with yard work, construction projects and cleaning the house.
Daughter Becky was working in a special-ed classroom several years ago when the antiquated VCR “ate” a tape. She pulled out her multi-tool, opened the VCR case and extricated the tape while the younger and older classroom aides watched in awe.
Several aides asked her how she learned to fix a VCR. She replied, “I never did, but I learned from my dad that you can usually figure things out if you’re patient and careful.” Learning to work will put your kids heads and shoulders above their peers.
More Kids Money Stories
When our eldest son, John, was about 12 years old, he spent the day doing yard work with Steve. After a couple of hours he staggered into the kitchen and pled with Annette, “Dad is KILLING me, can you tell him to give me a break!”
Annette replied, “You aren’t going to die, you just need to get back out there and get the job done.” John now tackles much greater jobs in his role as a sound and lighting producer — and others now ask him to give them a break.
He learned much about work and earning by getting an allowance for chores he did.
Real-Life Work Opportunities for Your Kids
Giving your young kids real-life work opportunities helps them discover their passion in life and to know what they absolutely never want to do again. Isn’t it better to help them fine-tune their focus before they spend four years and tens of thousands of dollars for an undesired college degree?
If you hire household help and keep your kids so involved in sports and extracurricular activities that they don’t know how or don’t have time to work, you are teaching them to be financially dependent on you.
Teaching your kids to work takes time and effort, but in the long run, it provides unending benefits to them . . . and you.
Do your kids know how to work?
Helping our Kids Earn Money
Kids need to know that they won’t instantly earn a million dollars when they graduate from college or trade school. They need to know that even paltry earnings add up to a lot of money over time if they manage their spending.
If you pay them excessively for doing simple chores, they learn a false sense of their worth. If you pay them a little bit, when they get their first job, they’ll be like our son Joe.
He came home with his first paycheck for a week’s work as a courtesy clerk at a grocery store and exclaimed, “Dad you were cheating me! I used to earn $10 each week for working around the house, now I earn more than that in just two hours of work!” Joe enjoys managing his increased wages and has great goals for his money.
Teach your kids to develop habits of faithfulness in handling small amounts of money (allowance and birthday gifts); then they can be entrusted with more. The money will come as they learn to work honestly and diligently.
Are your kids willing to work for a small amount of money as they learn to work a real job? They’ll probably love getting an allowance for chores done around the house.
Helping Our Kids Manage Money
Kids need to learn to manage the money they have. Our kids learn early on to count money, calculate percentages, add decimals and allocate their earnings into envelopes labeled for specific purposes. Initially, they have three envelopes: Give, Save and Spend.
As they mature, their envelopes include Clothes (they buy all their own clothes from age 11); Camp (which will be more special if they pay for one-half or all of it); Christmas Gifts; and Car Insurance. Eventually, they start saving for a car, college (with scholarships) and someday, a house.
Teaching them now the skills and habits to manage a few dollars a week will prepare them to manage hundreds then thousands of dollars later. If we neglect this area of training, they’ll still spend the money . . . it just won’t be theirs . . . it will be ours.
We regularly hear of college-aged kids who rack up thousands of dollars in debt, not for school-related expenses like books and tuition, but for food and fun and treating their friends to good times. They use their credit cards as an unending source of income.
If you’re looking for an allowance app where you work with your kids to set goals and allow them to earn money, check out MyFirstNestEgg.com
Have you taught your kids a system for managing their money?
Helping Kids Learn to Plan
Teaching a child to look ahead to plan activities, projects and to save for big-dollar purchases equips them with fantastic skills. In college, they will have progressively longer deadlines for projects; the same will apply in life. They must be able to look ahead several weeks and budget time to meet deadlines.
Our kids learn this through our weekly staff meeting where we discuss the schedule for the week. Everyone has date books and writes down chores, appointments, and goals for the week. If they’re working on a longer-term project, they write down the portion they want to accomplish that week.
Sure, sometimes they procrastinate or forget, but it doesn’t happen often and they accomplish great things over time. Our youngest daughter Abbey set a goal to save $175 in four weeks for a 4-H leadership camp she was invited to attend. To do this, she had to set aside another goal — buying an iPad — in order to save enough money for camp.
When she finally reached her goal of saving for camp, she immediately returned to saving for her iPod and finally made that purchase in July. Yes, she was delayed a couple of months, but with planning and persistence, she reached both goals. Wow, what a sense of accomplishment!
Are your kids able to plan several weeks in advance for a goal?
Learning about Debt — The Value of Saving—the Dangers of Debt
We also need to inoculate our kids against the debt-crazed society we live in. Until recently, our culture flowed with easy credit. Young adults must be educated about the cost of borrowing money, or they will easily be influenced by friends or duped by salespeople to incur tons of debt that could take decades to pay off.
We’ve taught our kids not only to plan and save but also to look for the best deal. Educating them about saving and spending wisely immunizes them to the lure of debt. They know that by planning and consistent saving they can buy whatever they want and usually get a great deal on it too!
Your young adult needs to be able to set up and live on a simple budget system. It can be cash in envelopes (like our MoneySmart Kids system), a paper system that we describe in our book America’s Cheapest Family Gets You Right On The Money, or a computer-based version like YouNeedABudget (YNAB).
Managing money requires discipline and a system. Without these, most young adults will reject the concept of money management because they reject limits of any kind in their lives. It usually will take a crisis for them to be willing to start budgeting.
We transition our kids around age 17 from the cash-envelope budget system to the paper/bank-based system described in our book. But we make this change only if they have proved faithful in managing the cash system (MoneySmartKids Financial Training System).
With the paper system comes the use of a debit card and, eventually, a credit card (if they want one) used for gas purchases only. This helps them start to establish credit and can be done while we are nearby to advise them if problems arise.
Online Financial Tracking for Kids
We’ve taken our kids to Web sites like Bankrate.com, which has lots of interactive calculators, so we can help them understand what it takes to pay off a debt. Give it a try. Set up a scenario of $3,000 worth of credit card debt at 16 percent interest and see what the minimum payment would be. Then show them how long it would take to pay off that debt by making the minimum payment.
Look at what it costs to borrow that $3,000. If you really want to open their eyes, show them a scenario of paying off $40,000 worth of student loans at 5 percent while trying to make a $900-per-month rent payment and a $300-per-month car payment. Sending your kid off to college with a new credit card in hand and no experience or training is a sure recipe for financial disaster.
Are your kids’ debt educated?
The beauty of paying your kids to do chores and other household tasks AND understanding the 5/50/500 money rule is that you can start giving your kids control at any age. Just know that the later you start, the louder their protests will be — “You mean, I have to pay for my own auto insurance out of what I earn?”
But, it’s better to hear their displeasure at a time and a place you have determined rather than getting a frantic phone call that their car has been repossessed and they want you to help get it back.
If you start training your kids at the $5 stage, it’s likely you’ll never hear protests of any type. You will only hear glowing reports about how cool it is that your kids can afford to buy their own toys at a garage sale. Or you’ll see the look of total satisfaction when your daughter pays cash for her dream car. We’ve been there for all of it and the payoff is unforgettable!
With the investment of time and foresight, you can turn the 5/50/500 money rule into the 0/00/000 rule. This will empower your kids to stand firmly on their own financial feet and protect your retirement nest egg too!
This video shares information about our allowance system and has two of our kids sharing what they learned by working for their pay.