Earning an Allowance
When parents talk to their children about the importance of good money habits, it can be educational and empowering. Setting aside a regular allowance and teaching children how to manage it can be a powerful tool in helping kids cultivate good financial habits for life. Teaching children about the benefits of responsibility through earning an allowance is a great way to introduce basic money management skills.
Incorporating allowance into a child’s weekly routine can be achieved in several ways, but here are some basic tips to help parents better understand the process of setting up an allowance.
What is an Allowance?
An allowance is an amount of money given on a regular basis to a person, such as a child or family member, to use for a specific purpose. This might include spending money, or money for educational, recreational, or household items. The allowance should be given to a person as part of delivering an education related to saving and spending money, and more importantly, understanding the importance of money management so they can make financially sound decisions as an adult.
When Should an Allowance Be Introduced?
All parents have different opinions on when to introduce an allowance. Most generally advice to wait until a child is at least five years old and can easily differentiate between things that cost money and those that don’t. It’s important to take into consideration the age and maturity of the child before deciding when to start.
What Should an Allowance be Used For?
When deciding when to start the allowance and how much of it to give, the purpose should be the most important factor to consider. Discuss with your child why you have decided to give them an allowance and what it will be used for. If the money is being given as a can use it however they wish, discuss how to use it responsibly, such as setting aside money for upcoming purchases, pocket money to buy toys, or money to save up for larger purchases.
How Often to Give an Allowance?
Determining how often to give an allowance is up to the parents, but the most common allowance is weekly. Many parents allow their children to receive money on either Friday or Saturday to coincide with their direct deposit or the traditional weekend allowances of prior generations.
Also, depending on the age and maturity of your children, you might consider using a combination of an allowance, a few jobs around the house and special privileges like going to the movies with friends. Doing this allows you to reward your child for their work and hard work without giving them too much money.
Developing Positive Money Habits
Starting an allowance and teaching kids daily money habits can be beneficial for the development of the child’s long-term habits for money. It’s important to teach your children about budgeting, saving, and investing, because this will be critical in the future. With the right money lessons, children can begin to understand how to save and how to spend money carefully. Here are a few important lessons you can teach your children when it comes to saving and spending:
1. Teach them to Save
Teach children to save at least half of the allowance they receive. This money should be put away into a savings account or a piggy bank, this way they can easily track their savings. All children should be encouraged to save at least 10% of the allowance each month, so that when larger items needs to be purchased such as clothing or electronics, there will be enough money available to do so.
2. Teach them to Prioritize
Children should be taught to prioritize their spending. It is important to explain to kids that there are certain items that need to be purchased before anything else. For instance, prior to spending money on a toy or new pair of shoes, any money due for services rendered or any bills should be taken care of first.
3. Teach them to Track Their Spending
In order to teach effective money management, children must first understand how to track their spending. Show your kids how to use a tracking app or spreadsheet to track their allowance spending. This will also help them establish a pattern of responsible spending and force them to think more carefully about how they are using their money.
4. Teach them to Shop Smart
Shopping can be a fun activity for kids, but it’s important to teach them to shop smart. Explain to children that they should always compare prices and look for the best deals. It’s also important to teach children to not be influenced by advertisements and special “savings” offers. Having an understanding of sales tax is also helpful.
Providing children with an allowance and teaching them good money habits can have a great impact on their financial choices later in life. Even though it may take some time to find the right balance of teaching your children financial responsibility and preparing them for the real-world challenges of handling money, it will pay off in the end when your children are better equipped to make sound financial decisions.
When it comes to raising financially responsible children, teaching them the importance of budgeting, saving, and investing is key. Setting an allowance allows children to practice these important money management skills, so that they can become better equipped for their financial futures. With the right guidance and instruction, kids will have the necessary tools to make their money work for them, and develop positive money habits for life.