By Karen Morgan
Kids & Money
Allowance
QUIZ: Kids today spend more money in a week than:
- a. Kids 10 years ago spent in a month;
- b. Kids 20 years ago spent in a year;
- c. Their parents spent on the honeymoon that started it all.
Spending is an issue that affects all families. How do we begin to teach our children the value of money? Many people say that an allowance is the key to that teaching. With an allowance, kids can learn to manage money through their own experience while they still have their parents to teach and guide them. If they learn to manage money as children, our kids will be more successful at managing money as adults.
What is an allowance?
An allowance is a fixed amount of money given to a child during a fixed period of time. It is money that you are going to spend on your child anyway, just given in a different form. It is not "extra" money. An allowance is a hands-on method of teaching children how to spend and save. By using their own funds, a spending limit becomes real. The ultimate goal of an allowance is to teach children to distinguish between need and wants, and to prioritize and save.
Why do kids need an allowance?
Kids need an allowance because:
- Having a regular amount of their own teaches
children to manage money.
- If they make mistakes managing money at a young age, the cost is minimal but the lesson is great.
- Knowing the limit of available funds forces kids to think about how much things costs. It also forces them to make choices between the many things that they want.
- Kids have more appreciation for the things they buy when they use their own money
- First hand experience is vital to learning smart money management. Without the money, there is no experience.
When should you begin giving an allowance?
What is the best age? Some say that as soon as they are old enough to get the "gimmes" in the grocery store, it’s time to start teaching about money. While that might be stretching it, once your child shows both an interest in and an understanding of the concept of money – that money is exchanged for goods – he or she is ready to start learning the basics of money management. For some, that could be as young as age four. For others, it may be later.
How Often?
Some say once a week. However, older children may be able to receive and manage a bi-weekly or monthly allowance.
How Much?
Some parents use the formula of "a dollar for each year of age." To be more accurate, you should consider how much money you already give your children when you open your wallet to pay for everything they ask for. Estimate how much you are already spending by fulfilling requests to buy this or that, then set that amount aside as their allowance. This allows them to make their own decisions about spending. You'll probably save money in the long run. Also, be flexible to reviewing the amount when appropriate as their needs change.
What is the allowance to be used for?
Once you have the amount, you should make a list of what your children are expected to pay for with their allowance. It is critical that your child understands where the money will be spent. This will solve conflicts later. And, while most of us think that allowances are to be used for "wants," it is a good teaching tool to make some of the allowance be for things they need. For example, let your child buy his or her own toiletry items. Even your first grader will quickly get a sense of whether he really "needs" the six-dollar Lightning McQueen electric toothbrush.
Keep a journal:
Work with your child to keep track of exactly where the allowance money is going. Keeping a journal requires your child to be accountable for his or her spending. It also prepares him or her to handle large sums of money and to manage a checkbook. As a rule, you should avoid questioning the purchasing decisions. However, you may offer helpful advise on how the money could be spend more productively.
Allowance vs. Chores:
Should you tie an allowance to doing chores around the house? Most experts say no. If you would normally pay an outsider for things like raking leaves, mowing the lawn, etc., then you can pay your child for doing that job above what the allowance would be. However, do not set up chores that your child is expected to do regularly around the house (making bed, cleaning room, etc.) as tasks that allowance "pays" for. These should be part of normal household responsibilities. Likewise, do not "take away" an allowance as punishment for not doing household chores. You should withhold other privileges instead.
Saving Money:
What if your child doesn’t spend all of his or her allowance? Great. Teach the value of saving. Make savings visible to young children in a jar so that they can see their money growing. If they save on a regular basis, you can even add "interest" to the jar to encourage the practice.
Borrowing Money:
Should you let your child “borrow” money from future allowance? That’s up to you. But if you choose to allow borrowing, you must make it a learning experience. Use a visible IOU jar just as you would a savings jar so that the child can see how much he or she needs to repay. You can also charge interest just like a bank.What are the parents’ responsibilities?
First – don’t forget to pay the allowance and pay on time. Treat each allowance payment with the same respect that you treat your own paycheck. After that, teach your children the basics of spending, saving, and borrowing. Guide them with love and wisdom through the world of financing. Any time that you put in now will pay off when they are on their own.
Helpful website and source materials:
www.kidsmoney.org
If Barbie is so popular, why do you have to buy her friends?
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