Perhaps getting your child on an allowance and budget system has you inspired by how neatly your child’s finances are organized and has you wanting to take a deeper look at your own. If you really want to get your entire family’s financial life and spending under control, you can use a philosophy that has been dubbed the “family economy.”
The family economy is a highly organized system that tracks the inflows and outflows of everyone’s spending against a careful, holistic budget. Each member of the family is inducted into the system at a predetermined age—but at a limited level. For example, at age seven your child might be given an allowance meant to cover discretionary spending, like toys or movies with friends. Every year the child’s level of responsibility is increased, until he’s using a budget to administer every dollar allotted him to cover all his expenses, from clothing to gas. Additionally, the family budget is transparent to everyone in the family, so that children have perspective on the money being spent on them and also understand the expenses of the home.
If you’re interested in setting up your own family economy, you can read several books—most of them part memoir and part prescriptive planning—written by people who experimented with this in their own homes. The Entitlement Trap by Richard and Linda Eyre talks about their family economy, a well-planned system that includes a chore board where tasks are assigned point values that translate into a weekly allowance for the child. While the Eyres started simply with a budget of 10 percent charity, 20 percent savings, and 70 percent spending, eventually they grew the system so that the child’s allowance was responsible for almost all of their needs. In The MoneySmart Family System by Steve and Annette Economides, the Economides reveal that they were inspired by the Eyres’ lifestyle to establish a family economy. They built a graduated system that had their children managing all their own expenditures by age sixteen, including some college savings.
The final book I read with this theme was Raising Financially Confident Kids by Mary Hunt. Tired of her constant debt, Hunt decided to create a family system where children were responsible for all their own spending. She prescribed a budget of 10 percent charity, 10 percent long-term savings, 40 percent medium-term savings, and 40 percent spending for her children. After laying the groundwork for how to be responsible with money, she turned her son loose with his monthly allowance. In addition, a 15 percent tax was enacted on all “earnings” and then put into a family pot.
Each of these examples potrayed a group who believed their own family economy had been successful in creating financially capable children, citing examples like one daughter almost fully funding her college experience via scholarships and a son waiting to purchase a home until he could execute the purchase entirely in cash. If you’d like to create your own transparent family economy, you can replicate one of these families’ experiences or pick and choose what works for you.