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Allowance and Your Child
If you’re like most adults, saving money, investing and interest rates probably weren’t popular topics around the dinner table when you were growing up. As a result, many young people get “thrown to the wolves” when it comes to taking their first steps toward managing their finances. Without some type of financial education, many Americans learn by the age-old process of making mistakes.
But there’s a “real-life” tool to give kids a healthy financial start: implement an allowance system!
Why an allowance?
In the “old days”, an allowance was used as a reward (for good grades) or as an incentive (mow the lawn and earn some green). But these days, giving a child an allowance is an important learning tool that can lead to a healthy financial future. Some good reasons for giving allowances include:
- When a child has a predictable income, they learn to plan for the future.
- Having a regular amount of their own income is the only way kids can learn to manage money.
- Kids need to be able to make mistakes when the cost is minimal.
When should you start an allowance plan?
Start as soon as your child begins to say "I want!" for material things, usually around age 3–5. Any later and you’ve missed the opportunity to discuss money with a child who thinks your advice is “cool”.
Should allowance be a “reward” for behavior, chores or homework?
Surprisingly, this method is old school—today’s experts say NO. Paying a child for “being good” sends confusing messages about why kids are supposed to behave. Also, many parents believe that chores are an important part of being a responsible family member—not tasks to be performed if children want a reward. Additionally, if allowance amounts vary based on weekly chores, it’s difficult for kids to budget—one of the most important learning tools of an allowance system.
One problem with an allowance is giving too little. If the allowance isn't large enough for children to experiment and make mistakes with, it won't have the learning effect you’re looking to have. Weekly allowance amounts can vary widely depending on age, maturity level, family lifestyle, and goals. Check out mom and dad message boards and ask other parents or your child’s teacher to get estimates of appropriate amounts.
Break the cycle of silence!
Taking the mystery out of money will help you raise financially healthy kids. And that’s not just good for your kids; it’s good for the overall economy, too!