Teaching kids about financial literacy is important, and the lessons should start at an early age. Experts say that as soon as a child can differentiate between different types of bills and coins, they are ready to start receiving an allowance. This can be as young as preschool for some kids. So what do you need to determine in advance before you start doling out the cash?
- The chore connection. Will the allowance be earned and based on helping with chores around the house? Or will there simply be a set amount that each child receives every week? It is a bigger responsibility for both parent and child to attach chores to the money, but for many families, it is important to teach how pay is determined in the real world.
- The amount. You certainly don’t want to break the bank by handing out allowance, but you want it to be fair. Parents who already have established allowance amounts suggest anywhere from 50 cents to $1 for every year of the child’s age. You want them to be able to save for bigger purchases that won’t take them years to attain, but to show them that money really doesn’t “grow on trees” either.
- Set spending rules. How will you allow your children to spend their allowances? Will you require them to save some of it, or will you give them the whole thing to spend as they wish? Determine if there are any items that are a definite “no” and discuss some money-spending options with your kids in advance of handing them the money.
- Create an allowance schedule. Decide when you plan to pay out the allowance every week, and then stick to it. Show your kids that just as they are expected to complete their end of the deal in a timely fashion, you are committed to holding up your end too.
- Pay with small bills. This is just a suggestion – but kids will be able to wrap their mind around the money more easily if they can divide it up and spend it in segments. Make sure they pick a safe place to keep the cash until they spend it, and set aside an envelope for any allowance they determine that they want to save.
Giving kids a modest allowance is a smart way to prevent yourself from spoiling your kids and also to explain the give-and-take of financial matters. This could even open the door to talking about your own family’s budgets and household bills.
Do you give your kids an allowance and have any philosophies?