Children and Finance: The Pros and Cons of Giving Allowance
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Date: May 20, 2016
Your children learn early that things have a monetary value. Giving them allowances is a common way to help kids learn money skills, but some children respond better than others. Matching a successful allowance strategy to fit your child can be a challenge.
To Give an Allowance or Not
Giving your child an allowance permits the opportunity to:
- Practice basic math skills.
- Learn independence and personal responsibility.
- Teach the consequences of spending choices.
On the downside, allowances can cause some children to:
- Think less about money, since it's always there.
- Develop a sense of entitlement about money.
- Be less likely to work outside the home as teens.
Whether you choose to give an allowance or not, consider how you communicate with your child about his purchase decisions. Discussing why he wants to upgrade to the latest new game can teach him about value more effectively than him burning through an automatically renewable financial fountain.
Connecting an Allowance to Chores
If you require your child to successfully complete a list of chores in order to earn an allowance, he may learn how earning money works in the real world. You can also offer additional incentives that require greater effort as bonuses, for example, washing the car, raking leaves or getting an A on a math test.
A chore-based allowance scheme, however, can undermine a child's perception of their family obligations. If work is done only to earn money, the child may see it as optional. Bargaining each contribution on a take-it-or-leave-it basis can undermine the positive lessons an allowance offers.
The No-Strings-Attached Allowance
To potentially avoid children expecting money for every chore, try giving a no-strings allowance, where there is no connection made between contributing to household chores and receiving money. The child is free to spend or save at will.
This method provides a dependable cash flow. You know what you're paying out week-to-week, not a bad thing when you're trying to budget. And, your child knows what amount he will receive and can plan to spend or save accordingly. One downside, however, is that a no-strings allowance might create a sense of entitlement, since your child's allowance arrives regularly without any obligation on his part.
How Much Should You Give?
General guidelines for how much allowance your child should receive are usually tied to age, such as one dollar or half-dollar weekly for each year of the child's age. This works out to be a value generous enough in your child's view, but not so much that he can buy whatever he wants.
Drawbacks can occur when the amount of an allowance is too low for a desired purchase. For example, a 12-year-old who earns $1 a week wants a new tablet, but is frustrated by the gap between his allowance and the purchase price. It's a good idea to set guidelines upfront for what your child is reasonably expected to purchase from his own funds.
Banks and Allowance
As young children start learning the concepts of earning money and spending it, keeping their money in a container where they can watch it grow aids the process. Introduce the concepts of spending, saving and donating by using separate containers for each purpose; this method provides visual examples that aid learning. When it comes to opening their own bank account, wait until they're around the age of 10, or when those online game and app purchases start adding up.