Whether you’re an entrepreneur or an employee, should you be giving your kids an allowance? My answer is no, and I’ll explain why.
Ask yourself a few questions. These may help you see what you are training them to be.
- Do you love your job?
- Do you feel that your job and income is your best potential opportunity available to you?
- Would you rather your kids be “limited”, or, “limitless”?
- Do you feel your kids will need an employer to take care of them, or do they have more potential than this?
- Do you think your kids won’t be capable of creating their own opportunities?
Sounds intense right? Think about what you’re teaching your kids by having them take out the trash in the home they live in, for money. On the surface you may think that it teaches them, that in order to get money, you must do a task. But is that thinking too simple?
While I’m in no way a psychologist (though after dealing with tenants for while, maybe I am 🙂 ), I see this in a very different way. As an entrepreneur, I didn’t, and still don’t, give my kids an allowance. While they are 26 and 16 at the time of this writing, they’ll both tell you that this has been the correct decision.
Training Your Child To Be An Employee?
I’m going to keep this article short, because I don’t want to press too hard on this issue and freak anybody out, lol. All good parents need to be allowed to make the best decisions they know how, for their kids.
I personally say don’t give your kids an allowance. But this decision is one an entrepreneur (or an employee who sees the unlimited potential of being an entrepreneur) needs to consider thoroughly.
Your decision on this, could point to your child’s understanding of being an employee or a self supporting entrepreneur. The problem is, you may be telling them to be an employee! What about showing them that there’s a better option.
This could be the beginning for you and how you guide your child toward the realities of work life. The easy way is to just do the “norm”. The kid gets an allowance for emptying the trash, much like the life of an employee. Also you let the school system provide influence, which is completely guided toward employment. That’s exactly the path MOST parents take. Kids are impacted the most by the guidance their parents have provided them throughout their early years. Take this decision seriously.
Some people may feel that the best advice they can give their child, is to follow the school system for 16 to 20 years. Yet their own adult life starts out with massive student loan debt that they have to overcome. Even if you guide them to become a doctor, lawyer, etc., then I certainly hope they have the exact same passion that you do for that career. Whether they do or don’t, they’re stuck with starting out their independence deeply in debt. The kind of debt that can’t be forgiven.
Might there be a better way?
Let Your Child Make The Choice
I personally believe that it’s highly important to show your kids the difference between making a profit and earning a wage. Let that be the most important aspect to teaching them. Then they actually have a choice to make for themselves, because you provided guidance from both points of view. Most kids are never taught that there’s another way, and that’s mostly because our school system only trains employees.
There may be some, but likely very few teachers, that are actually entrepreneurs. However, they have a curriculum that they must follow, so they can only teach what the system allows anyway.
Besides, entrepreneurs are creators/doers, so their time is spent doing the money generating activities they’re best at. Unless teaching is a passion of theirs, they won’t use their time teaching on a daily basis. Think about that for a minute. Would a passionate entrepreneur stop their business to become an employee and teach? NO.
This is of course general thinking because the world is a big place, but I’m sure you see that most likely your child is only going to learn about becoming and employee from the school system. So, if your child is going to have the option of becoming an entrepreneur, it should start with you showing them that option.
Your child will be pounded with teachings on how to become an employee, so don’t give your kids an allowance, which just teaches them to be employees. I know you’re thinking, “what’s the alternative”? Well, we’re getting there, I promise.
It Happened To Me, So I Know What It’s Like
I received a small allowance as a young kid, because that’s what was the norm. Again, it’s the “norm” because everyone’s trained to be employees. That’s why they project that behavior onto their kids.
Being trained my whole life to be an employee, made transitioning to entrepreneurship quite difficult. So it would have been amazing to have known that there was an optional way to think early on. I can only imagine how much easier life could have been financially, if I had known at a young age.
It would’ve also been great to have known that money is a TOOL. A tool to be used for creating a desired lifestyle, and for giving back. Most people use their earned money (I really should call it currency, because it isn’t money. More on that here) to buy the things they want. Actually, most people use money for the down payment on the things they want.
Two HUGE problems here! Using your money (or what’s left after the government taxes employees, much harder than entrepreneurs. More on that here) to acquire things is an issue because that’s the only purpose people think money has. That’s why they have to keep working to earn more all the time. The other problem is people using debt to buy things, that don’t make them money.
Each Of Your Dollars Should be Your Employee
Do you want your kids to control employees, or be an employee? Let me give you an example that shows the power of investing and the perspective of dollars being your employees.
Consider every dollar you get is like your employee. You should know that they need to be working for you, earning you more money. Money invested in a way that produces more money, is like multiplying your efforts, without you having to actually do the work.
Let’s say you stop buying “things” for a bit and save $100,000.00 (Relax. It’s just a number for example purposes. Lol). Now let’s say you invest all 100,000 of your employees in a real estate syndication deal and they earn a 10% annual return from the cashflow of the property.
Now you’re making your normal income from your everyday efforts you do personally, PLUS your employees are creating an extra $10,000.00 each year. Later at some point, the syndication will liquidate the property for a profit. You reap your 10% for each year, plus the profit from the sale and you’d most likely end up with around 300,000 employees after 5 to 10 years or so.
Now after entering the next investment with that syndication, you’re likely still earning your normal everyday income from your efforts, plus your reinvested employees are providing $30,000.00 each year until the next asset sale. After this second deal is liquidated, your employees are up to $600,000 (likely more). You’ve just multiplied your employees/money, and ended up with six times as much as you started with. All with no effort from you.
So clearly you can see the power of leveraging your employees (dollars) in this example. Don’t assume that these are fake calculations. I’ve doubled and tripled my employees in much shorter time-frames, several times. With this one simple mind-shift, your financial future can drastically change, as well as what you teach your kids. If your kids are old enough to understand, show them your results.
Money Making Money
Parents shouldn’t teach their kids to use debt to buy things that don’t make them money. If you buy a car using debt, and you’re not renting it out or driving uber, then that’s showing the wrong activity. If you need transportation, just buy with the money you have, so you can get to places that make you money. When you have more money coming in every month than you can spend, then splurge and buy what you really want, instead of need. Otherwise keep your employees working for you.
Ok, with the correct mindset, what do we want to do, to reflect this mindset on our kids? Well, we know it’s very important to counter what they’ll be bombarded with once they enter the school system. Certainly, you need to talk to your kids in a way that they understand. Do it often so they always know the reasons for the things they do.
Finally! Some Teaching Ideas
Here are some ideas to get YOUR mind spinning in the right direction, for the way YOU want to raise YOUR kids:
Make them a contributing member of the family
Have them take out the garbage and other small chores, but don’t give your kids an allowance for this. Explain to them that they’re an important part of the family, and all family members help out to keep a clean safe household
Be sure they feel important and appreciated. You can reward them with a weekly trip to the ice cream shop, or something similar. With that, there has to be a consequence for not keeping up with their duties. While reaffirming that they’re super important for doing their part, give them a consequence for failing to follow through.
Be sure to thank them each week for doing their part as required multiple times, showing they have value. There are other opportunities for them to make money other than doing household duties. Nobody’s going to pay them to clean their own house later in life. So unless you’re grooming them to be a maid, don’t pay them for this.
When your kids get old enough, include them on some of your financial talks with your spouse. Maybe not on everything, but on things that will help them learn and relate to real life. The great ideas they contribute, just may surprise you!
Time to make some money
Young kids have toys that get forgotten and clothes that they grow out of. Help them have a sale of these items. You can use Craigslist, Letgo, Offer-up, Facebook Marketplace, or have a good ole yard sale. You can read 12 easy steps to Craigslist success which explains more in depth.
Obviously, you’ll handle any phone calls when they’re too young but include them on all interactions with potential buyers. Help them price the items, but allow them to negotiate the sale as much as possible. This grows their people and speaking skills as well as learning what is fair. “This next part is Ultra-important!” You need to help them put their profits back to work. So, the following numbers are based on what to do with their money/Profit.
Help them understand that the profit they received has to be used in three ways. The following percentages are suggestions, because they’re close to what they should do as adults. You’ll be surprised with the growth by using the following ratios.
With the profits from the sales, your child should pay themselves first. Why? Because an entrepreneur makes money, and spends some of that money on the business expenses. Once expenses are paid, they then get taxed on what’s left. (As you know employees get TAXED First, then spend based on what is left).
Teach your child to take 25% of the profit for their enjoyment / reward. I teach to take 15% once the kids are in their teens. However, this will be a learning curve for you as well. All entrepreneurs should reward/pay themselves first. Pay taxes second (shown next). Invest the rest.
Tax Time!
Now it’s TAX TIME, lol.( Taxes are based on the full amount of profit, after all expenses and write-offs are applied.) We’ll treat this tax like a Capital Gain tax. I suggest holding out 15% of the remaining amount. As far as your child is concerned, this money is gone (eaten up by Uncle Sam).
Secretly take that money and open a savings account for them, but don’t tell them about it until they’re ready to use it later in life. Preferably once they fully grasp the reasons for the lesson of tax. Then have them invest this money separately so they’re able to see the progression of the next step.
Last step, but most important
Here comes the most important part. Helping them put their remaining money (the 60%) back to work! Do NOT put their money in the stock market! They ‘ll learn nothing and most likely lose money. That just teaches them to gamble. Remember, they nor you, likely know how to do proper stock analysis.
There are a couple options at this point that’ll help your kids learn the most. I suggest helping them find items that they can buy low and do some small improvements, then sell for a profit. Then repeat this process over and over. My youngest son learned to make money by, going from a free snowblower to a Porsche. He and I have partnered up on much bigger investments since.
Another option is to help them use the money to start a business that kicks off a profit. Boys might want to buy a lawnmower or snowblower and go get contracts with neighbors. Girls might want to choose a different business, but you get the idea. Either way, your kids should be taught that money is a tool. A tool for paying expenses, but more importantly, a tool for making more money so they never have to rely on an employer to take care of them.
It’s Your Duty To Teach (Don’t give your kids an allowance)
Converting over to this “Life Teaching System” at home will prepare your kids for the real world and all the possibilities and opportunities available to them. They won’t just see one side of the coin (employee).
This will also have you interacting with your kids much more. Your kids will have so much more quality time with you and learn so much more. Also, you’ll be surprised how much this activity will change your own financial behavior for the better. So remember,
- 25% for spending money
- 15% for taxes
- 60% for making your employees work for you
I didn’t include online businesses, or many other options. However, there are many more choices that allow your kids to make more money and benefit from this experience. With this new way of thinking, you’ll naturally find alternate options that teach the correct behavior. I hope you’re able to see that giving your kids an allowance is actually bad for them. If you truly want to see your kids prosper (and yourself), I hope you get this started ASAP.
