Spend, Save, Share: An Allowance Framework for Long-term Habits
Allowance can be difficult to give - you want your child to practice spending and saving but you also don’t want to watch your children throw away the money you give them on silly purchases. How does one balance these two conflicting feelings? A good compromise is the save, spend, share allowance.
What is the Spend, Save, Share allowance?
The Spend, Save, Share allowance is a framework that splits allowance into specific categories that can only be used in certain ways:
Spend: Your child is allowed to spend this part of the allowance however they want, within your parental guidelines of course. Giving your child some funds to spend as they see fit is important so that your child gets practice making prioritization decisions, learns to deal with the emotions of spending, and can be free to make mistakes.
Save: These funds are set aside and can’t be touched in the near term and help teach delayed gratification. You may decide the “save” money can be converted to “spend” after a set period of time, or perhaps you help your child set-up a goal. Goals can range from a large purchase that your child wants, such as a gaming system, or something even more long-term like a car for when they grow up or a college fund.
Share: Share funds are set aside to give, in whatever capacity that means to your family. It may be donating to a charity or buying a gift for loved ones.
How much should I allocate to each category?
The answer is everyone’s least favorite: it depends. The percentage for “share” depends on your philosophy, such as how important it is that your child learns to give and how much giving is appropriate. The “spend” vs “save” breakdown depends on the allowance amount and on your child’s money personality. If your child has a hard time with impulse purchases, consider increasing the percentage that goes towards “save”.
Our recommended starting point is to try 40% spend, 40% save, and 20% give and adjust from there based on what you observe. However, there is no right answer!
The surprisingly complex psychology behind Spend, Save, Share
Labeling money for different purposes can vastly affect one’s spending emotions and help improve one’s likelihood of achieving financial goals. This is due to the mental accounting bias; imagine if you have one account with all your money in it vs two accounts, one labeled “dream house” and the other “monthly budget”. The mental accounting bias says that you will feel much worse withdrawing money from your “dream house” account to pay for a night out than you would from the generic single account.
By setting up a spend, save, share allowance, you are helping instill a habit in your child that makes them comfortable setting aside money that they won’t touch. This habit is particularly relevant for young adults, where saving and investing early can pay huge dividends for home buying and retirement because of compounding interest.
Guardian Savings supports automatic allowance and allowance splitting
The Guardian Savings app makes it easy to apply the Spend, Save, Share allowance framework. In the app, parents can set an allowance amount that is automatically deposited and segmented by percentage into accounts of your choosing. Login to the parent area, select a child, and edit allowance settings to enable this setting.
