Create a Money System for Kids
Children as young as 8 years old can start learning about money. Too often, kids think that if they just ask long enough, they will get what they want. Too often, they are right. A great way to teach kids about money is to set up a money system. Here’s how …
Give them an allowance each week and keep track of how much they have. You can use a piece of paper taped to the fridge, you can use a spreadsheet or you can use a system like Notion. I have my kids using Notion for all kinds of things, so it’s easy for all of us to access the money system there.
Whenever you have a job you want done, offer it to the kids and tell them you pay $10 an hour (or some reasonable amount). If they want to pick up some extra money, they should be willing to do some extra housework, yardwork, etc. Give them credit in the ledger.
When they want something extra - something you aren’t already going to get for them - insist that they spend their own money. If your kids want something special at the grocery store or when shopping, tell them they can buy it with their own money. I’ll give examples below.
It also gives kids a way to settle disputes.
It’s also a great way to manage chores and things that need to be done. I’ll give an example of cleaning up after our bird.
While a money system may be a bit of extra work for parents, it gives kids a foundation for making tradeoffs and decisions. A money system helps kids think through and appreciate their own decisions, and it helps them see the consequences later.
A great book on this is Thinking in Bets, by Annie Duke. I recommend parents read it and explain it to kids, or at least have them watch her Google talk:
The basics
I use our money system to get my kids to behave the way I want them to. It’s simple, and it works. I don’t give my kids hard rules. I tell my kids to “do the right thing,” and “don’t do any wrong things.” They know very well when they are doing something wrong, and if I see it, there can be a charge. Usually, I give a warning first, but if it happens again, they lose money. Here’s how I set it up:
Incentive: $10/week for doing an hour of real helping above and beyond the obvious things. This is not too difficult. They are expected to help clean up and be generally helpful.
Penalties (money goes back to me unless it says otherwise):
$40 for telling a serious lie
$20 for hitting or kicking - money goes to the victim
$10 for pushing or forbidden words
$10 for minor physical injury/insult
$5 for small lies, bad insults, excess yelling, doing the wrong thing when you know better
$2 for leaving something where it shouldn’t be - anyone who puts it away gets the reward from the one who left it out (usually dishes in the living room)
It’s important that the lie is the most expensive. Otherwise, if the lie costs less, then they will figure out that it’s cheaper to lie about things. Obviously, there are times when you have to make a judgment call about things you saw or didn’t see, and in many cases a warning comes first, but in general it’s possible to create a system like this and get the changes you want.
I often say “Hey, if you prefer to spend your money on hitting and yelling than buying games and toys, that’s fine with me. Go right ahead.” This stops any aggressive behavior in its tracks. It’s great in the car or on a trip.
If they leave the Monopoly board after playing, I say “You’re telling me you want me to clean up the Monopoly board and put everything away? Sure. I charge $10 for that, I’ll get started right now.” And they jump into action.
If my boys leave a towel on the bathroom floor, I charge $5 to put it away on the rack. When I see a towel on the floor, I say “Hey, a towel on the floor! I’m just going to pick this up and put it on the rack,” and an 11-year-old flies in and puts it on the rack before I can bend down. So now it’s a rush to do things rather than a delay.
Occasionally, one of them will want to make some more money, so I offer him to help do specific jobs. I pay $10 an hour for this kind of help as well. More than a few times, one of the boys has said “Dad, do you need anything done I can do for an hour?”
I charge the boys $20 per cavity filling at the dentist, so when they complain about toothbrushing, I say no problem, we’ll see how many cavities you have at the next checkup, and the toothbrushes start wiggling.
When we go someplace like Disneyland, I say “Okay, each of you gets $30. You can spend it on anything you want, you can save it, or you can add your own money and get something for more than $30.”
When we go shopping, if Micah wants something a bit extravagant, say a large chocolate bar that costs $15, I say “Okay, I’ll pay ten and you can pay the difference, and we’ll get it.” Now, when it comes to him spending his own money, he has to think twice how much he wants the chocolate bar vs what else he could get for his $5. We do this on all kinds of things. If he wants me to order dinner from Door Dash, I say “Sure, I’ll pay for the dinner, and you pay all the extra fees and delivery.” Once in a while he does it, the rest of the time, we eat what we have at home.
The boys wanted a PS5. I said okay, I’ll pay 1/3, and each of you pay 1/3 and we’ll get it, but you’re responsible for buying your own games. Rather than getting it on Amazon, the boys thought getting a refurbished unit on eBay was a good idea.
Micah wanted new headphones. Since his brother’s cost $150, I told him he had $150 in credit for headphones. He bought exactly the headphones he wanted but he got them refurbished from eBay for half price and pocketed $75 for his account to use on other things.
Shai he would pay Micah not to say anything unnecessary for one whole day. He managed to do it, and Shai paid Micah $8. It was a lovely day.
Micah studied Lincoln so he could tell his cousin about Lincoln when he came to DC. We were talking and I said Lincoln is buried in Illinois. Micah said no, not Illinois, somewhere else. Instead of arguing, we bet. Lincoln is buried in Ohio. I lost $5.
When a child does something really well, I don’t reward that with money or much praise. As we know, praise is dangerous. I acknowledge it, try to be specific in saying what he did that I liked, and that’s about it. I want them to have their own intrinsic motivations for doing things well. I don’t want them doing things for the reward.
Occasionally, when there are a lot of arguments, I call for a 30-minute “quiet period,” where there is total silence in the house. Anyone who speaks is charged $5 per word. They can write on paper if they need to communicate. This silence is golden, and afterward the yelling does not resume.
Disagreements
My kids disagree with each other all the time. A few weeks ago, the younger one bragged to the older one that he had been to Sedna, a planet in the game WarFrame. The older one said he hadn’t. They didn’t argue about it, they bet. They called me up and told me to turn on the game and see where he had been, and it turned out he had never been to Sedna, so the younger one lost $5 to his brother.
There are very good reasons smart people should settle their differences with bets. A fantastic book on this topic is Thinking in Bets, by Annie Duke. Betting helps you reduce overconfidence and forces you to think which arguments are really important to you. If you’re not willing to bet, it’s not worth arguing about. Once you have a money system set up, here are a few rules for betting:
Set a maximum bet amount.
Bets are good for the entire family - kids and parents should be willing to bet against each other. Last week, Micah and I were on a walk. He said that a particular restaurant up ahead was Mexican, “because it smells Mexican.” I said he gets $5 if it’s Mexican, and I get $5 if it’s anything other than Mexican. It turned out to be Mexican. I lost $5.
Don’t let one person take advantage of another by betting on something she knows the answer to. If you know the answer, it’s not a bet.
Settle immediately using the money system.
No borrowing. No doubling down. No cheating.
If you set up a betting system, give it a few months for everyone to get the hang of it. Go slowly and use it as a tool for learning and settling disputes. Let me know how it goes.
Using Notion to set up a system
I’ve been talking about the benefits of setting up a money system, and it’s easy to do. You could use a spreadsheet, but I got my kids to start using Notion, and now we all use the same system in a tab on our browser. Here’s a simple version:
This uses a formula at the end that maintains a running total for each boy. You could also do this using a shared spreadsheet. We use the honor system to make sure no one cheats. Cheating discovered would be very expensive.
Each week, the boys get their allowance. Then, if they do something wrong, I deduct the penalty amount. If the boys bet or transfer money, then you put the same amount in with a minus sign in one column and no minus sign in the other. The sums at the end are automatic.
If you want help doing this, get in touch!
Tracking bird poops
We have a conure - a small parrot - named Pickle. Like most parrots, Pickle poops 3 times every hour when he’s awake, for a total of about 36 poops every day. About half of these go under his perch or in his cage; the rest we have to chase down and clean up. As you can imagine, the boys who wanted a pet so badly and promised to clean up after the bird are much better at playing with Pickle than they are at cleaning up his messes. So I implemented a money system that works FLAWLESSLY, and I want to give it to you so you can use it if you want. Remember, the boys already get allowance and we have rules for other actions. Here are the rules for cleaning up parrot poops:
We have a sheet taped to the cabinet that looks like this —>
There is a pencil on a string nearby. Every vertical line is a poop that someone cleaned up. I’ll start with the case when only two of us are home. In that case, whenever Micah cleans one, he gets a point, which means I owe him $1. Whenever I clean one, I get $1 from him. Since Pepper isn’t around, this is a two-way competition to clean up, and you can see in the first section that Micah came out ahead by 4 points, so I owe him $4. We carry that over to the next day.
The next day, Pepper was with us, so it was a three-way race. Everytime anyone cleans up a mess, he puts a mark in his column and the other two owe him $1 each. But we are also on the lookout and clean as soon as we can, and as you can see it comes out fairly even. At this snapshot, Pepper owes each of us $3.
This set of game mechanics incentivizes everyone to clean up a mess as soon as Pickle drops it. It incentivizes us all equally, so if one person is getting behind, he has a strong incentive to catch up. If Pepper wants to just focus on other things and let the two of us do most of the cleaning, then he has to pay us to do his share.
There are a few minor rules to know: A) If Pickle is sitting on me and I take him to his perch to poop, then he has 1 minute to poop and I will get credit. If he doesn’t do it in 1 minute, then I don’t get credit. B) If Pickle poops on our shirts or pants, we automatically get the credit, because that still accomplishes the ultimate goal of zero poops. C) Anyone who finds an old poop that no one saw before gets credit for cleaning it up.
In this way, we have a clean house! It works! The money system changes from “Micah, did you clean up your bird’s mess today?” to “I got it! I got it! Move aside, I’ll take care of this!” A money system can really eliminate a lot of conflict.
You can use a money system to gamify your home and the mechanics of getting things done. You may need to be creative in coming up rules. If you get what you want, keep the rules. If you aren’t getting good results, change them.
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