A young boy is learning about budgeting money


Should a 5-Year-Old Pay Rent From Their Allowance?

Nov 30, 2018

I find one of the hardest things about parenting is knowing when to start teaching grown-up concepts to children in a kid-appropriate way.

Topics like finance, for example — at what age do you dive in? 

A few months ago, a post was circulated on the mom circuit (also known as Facebook mom groups) and the premise was that a mother gives her 5-year-old allowance, and then deducts a version of real-life bills, such as rent, to teach her about the real world. The kid gets $7 in allowance, and then pays back $5 — $1 for rent, $1 for water, $1 for electricity, $1 for cable and $1 for food. (What the kid doesn't know is that any deductions made were secretly being put into a savings account, so by the age of 18 there'd be some money set aside to "start off.") 

Relevant Reading: My Weekly Home Routine for Better Financial Health

Now while I’m not usually one to judge another parent on how they choose to raise their kid: I’m judging this one.

That's because I have some problems with this parent's approach. Her child's in senior kindergarten, and probably loves to crawl into mommy's lap, play with toys and she may even occasionally wet the bed. While kids are smarter than we give them credit for sometimes, I think of the unnecessary confusion that would come from giving and then immediately taking away money from a 5-year-old.

The way I see it, it's my job as a parent is to physically, emotionally and financially provide for the children I have. They didn’t ask to be here, and to collect rent from a 5-year-old places a burden of responsibility that I don't think a child should have on their shoulders.

I also believe in letting kids be kids. If a person is lucky, they will spend the majority of their life as an adult that has to do adult things like pay bills, file taxes and be financially responsible. If there’s something I wouldn’t want my 5-year old to think about, it's ‘real life.’

What's An Alternative To Charging Toddlers Rent?

One of the best things I’ve seen on Pinterest is the three-jar approach. A child is given a sum of money and it’s split into three jars marked spend, save and give. The premise is simple: half of the money automatically goes into the save jar, while the remaining half is split between spend and give. Giving could mean donating funds to a church or charity.

It’s teaching responsibility (want a new toy? Use your spend money!), it’s teaching long-term planning (pick a target number to reach with the save jar) and it’s also teaching empathy and philanthropy. The recent numbers show that Canadians are giving less to charities than ever before. I wonder: if parents of 5-year-olds today implemented a three-jar approach, could it inspire a generation of givers in a couple of decades? 

Relevant Reading: Money Can Buy You Happiness If You Know How to Spend It Correctly

I once had a conversation with a client about how she got into investing. Turns out, her parents' approach was similar to what I found on Pinterest: any sum of money given to her or her brother was split in two: they got half to save and half to spend. The twist was, should they choose to save their money, their parents would match it. While her brother chose to spend more than he saved, she realized at the age of ten that she would end up with more money by saving.

If I'm going to teach my kids about financial literacy and responsibility, I want to talk about money in terms of abundance rather than scarcity. 'Real life' looks different depending on the life choices made. Teaching kids financial literacy, from saving to investing, could mean that a child doesn't grow up to pay rent — that she has a mortgage instead. Or an investment property that covers it. That she has multiple streams of income. That she lives in a place where all those things are taken care of by account managers.

But to get to whatever my childrens' 'real life' looks like, I want to take toddler-sized steps and teach them financial literacy in ways they will understand, so they will be motivated to continue to learn, grow and maintain.

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