Bookmark Us: FurlFurl It DiggDigg BlinklistBlinklist RedditReddit Ma.gnol.iaMa.gnol.ia

Money Management Skills For Children and Their Parents

Image of Hands

Your Child’s Allowance

An Allowance Is A Simple Yet Invaluable Tool For Teaching Money Management Skills.

Establishing an allowance program for your children is one of the easiest ways to teach money management skills. An allowance provides your child the opportunity to make simple financial decisions involving spending, saving, earning and budgeting. As they get older you can increase the amount of the allowance along with the scope of what they are responsible for to maintain the usefulness of this versatile teaching tool.  Giving your child a strong sense of how basic finance works will give them valuable skills that last a lifetime.

When to start: A common starting point is on a child’s sixth or seventh birthday although there is no set rule. Each child’s development will be different. They should show a basic understanding of the concept of exchanging money for goods or services as well as an ability to perform simple counting and arithmetic skills like addition and subtraction before you start.

What it covers: Discuss with your child how the allowance program will work and make sure they clearly understand what the allowance is for.  Younger children may simply get an allowance for purchasing snacks or small toys.  As they get older you can increase the amount and add items or categories to the list such as movies or visits to fast food restaurants.  Perhaps they could be expected to implement a savings program or donate a small portion to charity.  If your child often requests premium or designer items you could make that part of their allowance.  Give them the responsibility of deciding how to allocate the money.  Many parents agree to pay for a basic item but give their children the option of paying for the more expensive version.  Remember that an allowance program is implemented as a means to teach them financial lessons.

How Much: There is much debate as to what amount a child should receive.  A good starting rule of thumb is a dollar amount equivalent to their age. For a six year old they would get 6 dollars a week as an allowance. This may or may not be appropriate for your situation.  The amount obviously depends on factors such as where you live, financial means and level of responsibility of your child.  Check with neighbors and the parents of your child's classmates to get a better handle on what's working for them.

How often: A weekly allowance is a preferred period for most families especially if the child is younger. As your child reaches teenage years the period could be extended to every two weeks and eventually monthly. Just try to remember how long a week seemed to you when you were younger.  The reason for extending the allowance period as you children get older is so that they can learn to manage their spending over an ever increasing timeframe.

Planning for an increase: Set a clear date when increases in allowance will be discussed and stick with the schedule. This could be at the beginning of the calendar year, the beginning of a school year, your child’s birthday etc.  If everyone is clear on the rules you won't be faced with constant requests for renegotiations from your child.

Earned or Received: An allowance program is more that just a money for services scheme or a handout. As a teaching tool, you need to decide the most effective way to use an allowance. Some families tie the allowance exclusively to household chores while others treat it as something the child gets independent of chores.  An ideal compromise is to set a base allowance independent of specific chores and provide a way for your child to earn more by performing specific tasks that are outside the norm.  They should be responsible for some chores without any financial compensation tied to them. As a member of the household they need to understand that there are things that must to be done to keep things running smoothly in the home.  Just like for adults, nobody is going to pay you to do it so why create that expectation in your children.  By the same token you want to create an opportunity for them to get more by doing more.

Keep in mind that you are creating a situation for your children to practice useful money management skills.  Some flexibility will undoubtedly be required no matter how well you set something up initially.  Make adjustments as needed, remind your children of your expectations occasionally and allow them to make mistakes now when the stakes aren't so high.  By establishing a well managed allowance program for your children you can set them on a course of financial success for a lifetime.