I grew up without an allowance. My parents got me everything that I needed, and they had ultimate say in whether I got things that they considered were “wants” instead of “needs”.

But I never complained though. They were fair and reasonable, and were generous as parents. Although they taught me to be careful with money, I did not want for much.

I remember when Mattel first created Barbie. It was crazy when Barbie hit the stores. Everyone wanted one, and so did I. But it was expensive back then. I didn’t think we could afford it. I would look longingly at the Barbie figures on the shelves but did not expect to own one.

Imagine my surprise when my dad suddenly said to me one day, “Do you want a Barbie?” You can guess my answer.

I still remember my first Barbie. She wore pink and she had reversible clothes that could go from “Working Girl” to “Party Princess”. I loved her.

Within a few years, my Barbie collection grew from one to seven. Suddenly, the appeal of Barbies wore off.

The Problem of Entitled Kids

Unfortunately, I think that this is the case for many of our precious kids today.

We want to give them all that we never had. We want them to know how much we love them. We raise them to want for nothing.

In addition, life is so much better for many families now. My family never bought me a tutu skirt (they were really expensive back then) but my toddler now has twenty!

Our workplace and society is reeling with entitled kids who don’t appreciate what they have, because everything comes so easily.

So how can we deal with this problem?

Removing Entitlement Thinking

Even though I didn’t want for much growing up, I was not an entitled kid.

And the biggest reason for this is because my parents impressed upon me the amount of sweat, time and sacrifice that they made, so that I could have a comfortable life.

I may not have had to suffer, but I knew that they were working hard to provide for me.

It not only made me grateful for them, and all that they gave me, but it also taught me that I could not take a good life for granted.

Removing entitlement thinking from our kids requires us to teach our kids that they can’t always get whatever they want, whenever they want. Secondly, we have to teach them that what they get, does come at a cost. My mom frequently reminded me of how hard my dad was working.

Financial Education & Responsibility

Although my parents were able to successfully remove entitlement thinking from me, I still struggled financially when I finally became an adult and moved out on my own.

This was because I had never learned to budget and manage my own money. While living under my parents’ roof, my parents had managed all my finances. I knew that it was because they loved me and didn’t want to burden me with financial worries.

Because of this loving but misguided intention, I grew up with very little financial awareness and skills.

Due to my own experience, I now want to ensure that my kid will grow up financially savvy, early.

Pros of an Allowance for Kids

I believe that one of the easiest strategies to start teaching your kids, even young kids, about financial responsibility, is to introduce an allowance to them.

An allowance is a weekly amount that parents give to their kids. The kids get to decide what they will do with the money. Kids are expected to plan, budget and save to get what they want, without bugging their parents for money.

Some parents give kids an allowance in exchange for help around the house, like doing chores.

Pros of an allowance:

  • Teaches kids about needs vs wants.
  • Kids learn to make choices about what to spend their allowance on.
  • Kids learn patience to save for bigger things.
  • Kids practice financial restraint and self-denial to give up less important things for things that they really want.
  • Kids learn to set priorities.
  • Kids start creating budgets and savings.
  • Kids may use creativity to make their allowance stretch further.
  • Kids learn about value and quality (some things last longer).
  • Kids develop independence.
  • Prepares kids for what an adult-job-life looks like.

As you can see, there is a lot of financial education that you can impart to your child using an allowance.

Cons of an Allowance for Kids

However, there are a lot of inherent problems with allowances too, and it mainly depends on how you administer the allowance.

If you pay your kid a weekly amount for doing nothing, they may grow up expecting society to pay them money for doing nothing. That is not how our world works. Our world rewards people for the contributions that they make and the value that they bring.

If you pay your kid for doing chores, you are teaching them that results come with getting things done. There is benefit in this because that’s how jobs work. What I don’t like about this concept though, is that job security no longer exists in many industries. Our economy now rewards results, not job tenure or security.

The other problem with paying kids for doing chores, are that they forget that they are a part of the family, and are expected to help out; regardless of whether they get paid or not. Raising kids that refuse to take out the garbage unless you pay them, is a problem. I spend enough time as it is now, cleaning up after my toddler. I certainly don’t want to be paying her an allowance to clean up after herself when she is older.

The Business Kid Allowance

I like the benefits of giving an allowance to kids but I do not like the downsides.

That’s why I decided that I would create my own allowance system, the Business Kid Allowance, to support the entrepreneurial and financial principles that I believe in.

Now here are some caveats; my system may not work for you if:

  • You don’t have time to help your kid find their way through.
  • You strongly object to teaching kids business or entrepreneurship skills.

The Business Kid Allowance is great because it teaches or allows your kid to learn business skills while taking on little to no financial risks. This allows them freedom to experiment and make mistakes without serious, damaging, financial repercussions to their future.

How Does the Business Kid Allowance Work?

Instead of paying your kids a weekly allowance for doing nothing, or helping out with chores that they should be doing anyway, the Business Kid Allowance requires your child to run a real kid business in exchange for money.

Your child could run the kid business entirely by themselves, but if they are younger, or you work well together, you can also do it together.

If you have a business yourself, you can also hire your kid to work for you, and their allowance amount depends on how much profits that they help to bring in. There may be tax advantages to consider here too, but please check with your local accountant.

For example, your kid could run a lemonade stand, sell produce from your garden, run a dog-walking business, mow lawns, sell art and crafts, help you run a garage sale etc. The point is that they need to get someone (not you), like a customer, or a client, to pay them actual money. For ideas on how young kids can make money, please see our blog post on seven ways that young kids below five can make money.

Your main role is to act like a bank or an investor. You can bankroll the initial startup costs of setting up, including materials. Any profits that your child makes, must be used to pay off expenses. What is left over, is theirs. Or you could vary this and share the profits 50/50 minus expenses. It’s up to the two of you to come to an agreement.

If the kid business fails and loses money, your kid doesn’t get paid anything. But they don’t lose anything either, except that the time they put into this business. This will hopefully motivate your kid to work hard to make the business succeed.

After they acquire enough experience, or when they end up creating a healthy profit for themselves, you can teach them about savings and investment. To do this, you can ask them to invest some of their savings into their next business venture.

A small kid business may need more time to create profits, compared to a traditional commercial entity.

You may wish to pay your kid a tiny allowance, while they work on creating profits within the business. The sum should be too little for them to buy anything significant, but serves to provide them with some money for day-to-day needs.

If you are familiar with the startup world, you will recognize similarities here. Startup founders often survive on their own savings initially until they can find investors to pay them a salary. However, they are not considered successful until they are finally able to bring in substantial profits, or grow the startup into something valuable and worth purchasing. When they get to this point, the rewards become exponential.

As mentioned before, your main role is to provide supporting finance, but you will most likely also act as teacher, business coach and cheerleader.

By running an actual business or providing a service where real customers give them money, your kid will learn about the importance of providing value and contributing to society.

The Business Kid Allowance brings in all the benefits of an allowance plus, other huge benefits too, as listed below.

Pros of a Business Kid Allowance

Here are some of the pros of a Business Kid Allowance, in addition to the benefits of kids allowances, as mentioned earlier:

  • Kids learn the importance of contributing something of value to others.
  • Kids learn basic financial skills of saving and investing.
  • Kids learn business skills.
  • There is none or very little business risk for them to bear.
  • They get the opportunity to make mistakes early and recover from them.
  • You can work together as a team to build something.
  • It teaches them about the startup life and entrepreneurship.
  • It also reflects real life. You don’t get paid for doing nothing, you get paid for the value that you bring to others.

Now, let me be transparent and say that we have yet to fully test this system out with our child as she is still only a toddler. However, we have tried aspects of it with her. You may have read about our kid business experiment of selling fruits from our garden. We have also involved her in picking toys to be sold when she has too many. At some point in the future, we may experience with selling a craft.

So if you try the Business Kid Allowance system, we would really love to hear how it went and any tips that you have for our family of readers. If you have other ideas, please share them with us too!