How To Become A Millionaire? Use Your Allowance As Training | Edukasyon.ph
Grown-up Guide

How To Become A Millionaire? Use Your Allowance As Training

There are two basic schools of thought about giving allowance to children. One is to make the children work for it in order to earn it. The other is to just give it to them on a regular basis with little to no conditions, depending on the agreement between parents and children. Some parents prefer a combination of the two.

What do you and your parents practice at home? Your chosen method should be in agreement with your family values. What’s important is that the guidelines and reasons are clear to both you and your parents. The important lessons and skills honed in allowance-giving are also disciplines in money management and work ethic.

Yes, how you are with your allowance now can train you to become a millionaire.

Our family’s allowance story

Several years ago, I was listening to the homily of a Jesuit priest. “The problem with parents,” he said, “is that they are so preoccupied with what they didn’t have when they were growing up. And now, they make sure that their children will get it, be it a Voltes V or Barbie toy. The thing is, you will never know the effect of that thing that you didn’t have. Instead, why don’t you focus on what you had as a child that really worked well for you, and then give that to your children?”

I came home thinking about those words and looking back at my own childhood. I recalled how receiving my allowance on a weekly basis—which was not yet the norm during my time—worked so well for me.

My mom trusted me to be prudent enough to make my allowance last for a week as early as when I was in kindergarten. And she was right in doing so! I didn’t just make it last for a week but I also saved regularly from it, with the help of my alkansiya shaped like a transistor radio (given to me as a gift by my dear pretty Aunt Vicky!).

Guess what? I have been a consistent saver since kindergarten!

Applying what worked well for me

Treasure box and tickler—my boys' secret to saving

My husband and I started giving our sons allowances when they entered Grade 1 when they were around 7 years old. We decided not to compute other school materials into their allowance. These things were not needed on a regular basis anyway. We bought their notebooks and other school supplies at the start of the school year.

We gave the boys allowance on the low side.

Their school prescribed the maximum cash a boy could bring to school at PHP 100 per day back in the ‘90s. But each of our sons’ allowance was only PHP 100 per week or PHP 20 per day! It was okay to do that because they continued to bring baon to school.

They kept their cash in a treasure box, a giveaway from their kiddie savings accounts. Every week they wrote down their savings in small notebooks. At first, they were very excited that they would sometimes save their entire weekly allowance for a 100% savings rate!

Early experience with the “cost of money”

One time, Enrique, our second son, saved PHP 115 from his allowance of PHP 100. So I asked him how it happened.

“My classmate borrowed PHP 5 from me last Monday because he ran out of money. He promised to pay me on Tuesday but he did not.” He answered. “Then on Wednesday, when I asked him to pay, he said he already spent all his money. I was angry so I said if you don’t pay me tomorrow (Thursday), you have to pay me more than PHP 5.”

His classmate said yes and even volunteered to pay him PHP 20 if he would forget again. True enough, he forgot about it on Thursday. But come Friday, my son collected his PHP 5 loan plus an extra PHP 15, for a hefty 300% interest plus penalty charges for four days!

At first, I didn’t know how to react. On the one hand, I was thinking, “Don’t allow your son to be a usurer.” On the other hand, I was cheering inside, “Hah, you cannot get away with crime here. Not with my son.”

To be a millionaire, pay yourself first

First Law of Money: Pay yourself first!

When our sons started using cellphones in the latter part of grade school, we decided they should pay for their own cellphone load out of their allowance.

They learned to do a cost-benefit analysis on the best loading mechanisms: sulitext, unlitext, etc. And it was the best way to control their cellphone usage! They would use other free communication channels before resorting to their cellphones.

I see a lot of teenagers with phone bills higher than mine today because their parents pay for their lines.
As the boys grew older, we saw their savings rates go down. There were weeks when they had zero savings. We didn’t want them to drop the habit of saving so we suggested to them—more like required—a minimum savings rate of 20%. And we asked them to set this aside as soon as they receive their weekly allowance.

It was our way of training them to follow the golden rule in personal finance: Pay yourself first!

To be a millionaire, go beyond saving

The Magic of Compounding

We didn’t stop with their treasure box. When their money in the treasure box reached PHP 500 to PHP 1,000 they deposited it in their ATM account.

When their ATM account reached an amount way beyond the minimum balance of PHP 5,000 at that time, we moved the money to higher yielding instruments such as fixed income and equity investments.

The first time I showed them the power of compounding with the aid of an Excel file, they were blown away by the thought that they could actually become millionaires even with just small amounts saved and invested religiously! You can download this Excel file for free and input the figures that suit your own situation. Use it as your tool in becoming a millionaire!

To be a millionaire, let go of your allowance (eventually)

Even if your parents can easily afford to give you hefty allowances endlessly, you are better off without it. Allowance has to end for your own good. Otherwise, it encourages you to prolong your student or unemployed life.

Let’s face it, once you start looking for a job, the starting salaries will likely be low. If your parents’ allowance is higher, why bother getting a job?

Many fresh graduates take the option to rest after graduation, before looking for their first job. They do this for many reasons. But for me, it’s best to at least start looking for a job as soon as you graduate. It takes time to find the right fit. You have to do rounds of interviews, tests, rejections, and comparing offers that come your way.

This is also a good process to start your transition from allowance to income and to make sure you don’t lose your hard-working habits from school. Both of these are important in your money-smart strategies for how to become a millionaire.

The main lesson

So, do you want to be a millionaire? If you do, remember that learning how to manage, save, and invest from your allowance is the most valuable training ground you should take advantage of right now! It is the surest way to become a millionaire.

Yes, you can be a millionaire even before you start working if you start early on. It is not in the big bucks that you will earn once you start working, nor in the lottery that you will win, nor the inheritance that you will receive, nor the rich partner that you will marry that will give your financial abundance.

It’s in the discipline of “Paying yourself first” that you will eventually have your first million. Do this regularly starting now and you’re off to enjoying financial abundance well into your adult life.

Cheers to high FQ (financial intelligence quotient)! Want to know where you are with your knowledge (and behavior) around money? We’ve got a quiz. Show us what you got!

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