This post is about teaching financial literacy to my children. I have a distinct memory as a teenager, working as a lifeguard, getting my first real paycheck, and seeing a large chunk of change missing due to social security and income taxes. I was shocked.
I want my kids to be prepared and know what to expect.
So my oldest, now almost six, gets an allowance, but it comes with payroll deductions.
Here's how it works: He's paid the princely sum of $5 per week, in cash, and in full. From this, $1 goes to taxes, $1 goes to 401k (Ok, it's a jar marked "save." He wants to save up for a Nintendo game, and I think that's great.), and $1 goes to a donate jar for a charity of his choice. So his net take home is $2/week, which he usually splits between spend and save.
What do taxes go to you ask? Well, the common good and lining the royal coiffeurs, of course. No more questions.
Naturally, I've thought of increasing his allowance even further and adding room and board to his list of expenses. That way, Increases in allowance could be negated by cost of living increases, and that right there, is a nice little lesson in inflation. I've also though about making pay day and rent collection separate activities, so that he has to be responsible with managing his cash position during the intervening time period. If he comes up short, his landlord might come looking to hold onto a few toys as collateral until payment is made. But that seems a bit advanced for a six year old and I have a better half to stop me.
And that, dear readers, is how the Awkward Engineer handles allowance and teaches financial literacy to his children.