An economist's seven rules for raising kids

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It's come to this, you've been blessed with children. They're growing up. And now you've got a house full of kids.

Feeling overwhelmed?

Yes, of course. But have you ever considered applying economic principles to managing a large household? Here are some real lessons learned from two Ph.D. economists with five kids. The basic key is to reinforce simple old fashioned values with the right incentives.

Rule 1: Limit Their Options

We don't offer a weekly allowance. If our kids want anything beyond basics, they have to earn the money. Make sure to set firm limits on TV watching and keep just one small-screen TV in the house (which discourages the adults from watching, too). And impose tight restrictions on silly video/computer games.

Rule 2: Economic Incentives -- Offer Plenty of Jobs

Teach kids chores at an early age and pay them reasonable rates. For us, the seemingly endless loads of dishes -- about three every day -- became the main chore. Even small children can handle dishwasher take-out loads, at least if you first remove the sharp knives and use plastic glasses. And to them, it is a new learning experience.

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Not tall enough? Just have a sturdy stepping stool and allow them to climb up on the counter to reach most shelves. If they still cannot reach safely, let them stack dishes neatly on the counter.

Seasonal outdoor job have included weeding (a great chore for anyone old enough to enjoy digging with a plastic shovel.) Explain why the root of the dandelion and plantain weed has to be dug up. Ten cents can be reasonable per weed, with extra bonus for big roots. Soon enough they learn not just biology but counting, too, as they see how much more they need in order to afford that toy at the store.

If you live near a town center, older children can be offered work running errands -- buying a few items at the corner grocery store, picking up the Chinese food or taking a package to the post office.

Rule 3: Bidding/Auctions

For that run-of-the-mill dishwasher job, we typically had a set price -- somewhere between $1 and $1.50 per load -- on a come-first basis for getting the job. But at times, there were suddenly many kids competing for the dishwasher job. What to do? Economics offers a good solution: bidding, where the kids put in lower and lower bids for the job, ending when nobody wanted to go below the latest bid.

And if nobody wanted to take out the dishes, the remuneration offered would go higher and higher until there was a taker. But the pay never reached ridiculously high levels, for at some point the dishes would just sit around for a bit longer or a parent would do it. (Perhaps surprisingly, there never appeared to be any collusion among the children to try to get the pay up.)

Rule 4: Encourage Your Kids to Come Up with Ideas

Let them use their own imagination of what they can handle and what might be needed for the household. This works especially well with older kids, who might suggest steam cleaning, window washing or an indoor or outdoor paint job.

On one occasion, I remember the project turned out to be an adventure of sorts. It all started with a contractor bid on some various tree work, including a medium-sized tree to be cut down for the sum of $100. The two oldest boys, in their teens, got the bright idea of proposing to do the work themselves at the same price, using our simple hand saw and ladder. Indeed they did, toiling away some fifteen hours or so between themselves but seemed to have lots of fun in the process.

Rule 5: Respect for Property Rights

The family provides basic family games that anybody can use -- chess, Monopoly etc. Beyond that, games and toys are viewed as a luxury and can be accumulated by saving up and buying them or maybe receiving them as gifts one day. However, there naturally arises an asymmetry where the older ones possess much more than the younger ones.

Should the oldest be obligated to share with multiple little siblings, or should the younger ones have to wait until they have saved up to buy their own? Some people might argue that, out of fairness, the older child should share his ample possessions. But if he had to work hard, doing dishwasher loads etc. to buy himself the games, is it really so fair that his siblings would share in the fruits of his labor?

The solution? The budding entrepreneurs figured this one out by themselves: a fee for rental.

Parental monitoring might needed if siblings are a bit too young to understand exactly how much they are charged. The fee can be translated into something easy to comprehend, such as the equivalent of dishwasher loads or weeds pulled.

Actually, there are even more benefits to allowing the pay-to-play setup. Expecting a possible rental market with younger siblings, older ones figured they could recoup some of the purchase price for a new game, possibly even making a profit. That made them consider the tastes of their siblings -- i.e. potential customers -- when considering investing in new games.

And it went even beyond than that in creativity. Our oldest son even conjured up elaborate board games of his very own, with his younger siblings liking them enough to pay to play.

Property rights also mean you are free to sell off a game or toy to a sibling, as long as the buyer fully understands the consequences of the deal.

Rule 6: The Importance of Long-term Contracts

I confess, it was tempting to hold the seven-year-old to his promise made a year earlier that if he could have a younger sibling, he would change the diapers. Alas, they do have to be a bit older to enter into detailed, long-term contracts.

The twelve-year old wanting cats, however, presented itself with a perfect situation for drawn-out contract negotiations. In the end, we committed to pay the financial expenses but he would perform all the routine care. And we were to care for the cats during college while he would take the cats with him wherever he went after college.

Rule 7: Justice: You Do Bad things, You Suffer in the Pocket Book 

Most families seem to practice "time-out" as punishment. But that requires considerable monitoring and fails to give restitution to the victim. And holding long moral lectures is boring, both for the parent and the child.

Imposing fines instead worked very well. Most cases were trivial and routine. Such a minor offense as saying "bad words" resulted in a quick judgement of a small fine to the household.

A few cases though called for a full hearing in "Mom's Court," with plaintiff, defendant and possible witnesses. Hit your sibling, and you end up paying a hefty fine for inflicting suffering.

When fights involved only the younger ones, the responsibility for being judge was sometimes delegated to the oldest child, with some limited right to appeals.

So over the years, all these ways have evolved naturally. We'd like to believe it has contributed not just to make the household run a bit easier but also to instill some work ethic and develop a sense of taking initiative. We never had any talk about "self-esteem" or other psycho-babble, but think the children naturally gained self-esteem from learning how to do tasks, even if menial, and see how it helped out the household.

Gertrud Fremling has a PhD Economics from UCLA and is the mother of five children ranging in ages from 10 to 24.