In a 2016 family financial literacy study, which touched upon the topic of allowance for children, asked respondents “Which of the following best describes your approach to allowance?”
- 60 percent answered: I give allowance, but kids have to earn it
- 19 percent answered: I give allowance without any requirements
- 21 percent answered: I don’t give allowance
How you would have responded to this question likely indicates whether you, a) believe an allowance for children can teach them about money, and/or b) whether you believe it important to teach children about money.
The Dos of Allowance for Children
So if you’re someone who will create an allowance for children, here are five tips to help make it count toward teaching your children good financial habits:
Be Clear About the Terms
When you’re ready to pay allowance, be businesslike about it with your children. Discuss with them why they are receiving allowance, how they need to earn it, how much they’ll get, how often, and under what circumstances it might be withdrawn or revoked. If you decide to require that certain chores must be done before allowance is paid, be clear about your expectations and stick to them.
Consider Each Child’s Readiness
Regardless of what age your child is when you decide to pay allowance, it’s important to gauge if he or she is receptive to learning about or handling money. If your child has little interest in cash, you may be better off handling requests for toys or outings on an ad hoc basis. If you start an allowance that is tied to chores or grades and your child balks or is unmotivated by the money, you may choose to wait until he or she is older.
If you want your kids to develop sound money habits in the future, helping them establish some financial goals and determining how the money is spent or saved can be invaluable. Taking your child to an actual bank to set up a savings account can be a powerful lesson about the importance of saving, even before they are ready to grasp the concept of interest.
Simply forking over cash is unlikely to instill good financial decision-making down the road. Make financial discussions a part of your day-to-day life in ways that are relevant to your child. Talking about why and how you spend, save or give makes money more real for children.
Set an Example
Make sure that you are being a good financial role model. Kids know when you’re walking the walk. Talking about making responsible decisions with money will be most powerful when you are actually demonstrating that responsibility.
Don’ts of Allowance for Children
For every do their is a don’t.
Don’t Turn Your Kids into Little Mercenaries
Janet Bodner, expert in family finances, says she has learned from speaking with families over the years is that tying allowances for children to chores should be avoided, “For one thing, you don’t want to turn your children into little mercenaries who balk at washing the dishes unless they’re paid. Kids should help out around the house without expecting anything in return because they’re part of the family.”
How great is the visual? A camo-clad, seven-year-old who scopes out the back yard before emptying the trash and collecting his pay.
Don’t Give Handouts
An allowance is not a handout. One of the main purposes of an allowance for children is to help them understand the connection between work and pay. The work should be considered above and beyond the family Call of Duty (to continue the mercenary analogy). These tasks or extra jobs largely depend on what your family defines as chores versus extraordinary tasks. This provides your children the chance to take initiative and equate hard work with money earned.
Don’t Avoid Teaching Moments
Providing allowance for children generates ample opportunity for financial discussions. Don’t overlook these chances to instruct. When parents provide allowances, they put themselves in a position where their kids could beg for a raise or advance. Engage them in negotiations.
How long since the last raise? Will new expenditures be covered? What amount of the raise will be saved long-term for expenditures requiring your approval?
Teach your kids well. Young adults starting out today face financial and economic obstacles their parents never encountered. You can’t fix the economy, but it’s never too late to teach them about saving, making smart purchases, and the importance of managing their money.
This prepares them for the true price of everyday, financially responsible life. Imagine the head start your kids will have. They will know how to save, know the dangers of debt, understand the importance of work, and eventually the importance of protecting what they have worked for.
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