Allowance: Money-Management Training

by Jessica Sommerfield · 0 comments

Paying children an allowance, a practice that’s become prevalent in our society, can be either a hindrance or a help to a child’s concept of money management. A recent survey indicated that the average child receives $15 a week in allowance; in a year, some kids make close to $800.

While being given a certain dollar amount to spend on non-essential purchases can teach a child budgeting skills and appreciation for the value of money and possessions, receiving too much spending money can also foster dependence and set unrealistic standards.  Research indicates that the higher the amount of allowance a child receives, the more non-essential expenses their parents are likely to fork out for them in other areas. With the current trend of the Millennial generation living at (or moving back) home later into their twenties, parents should consider carefully how much support they want to provide.

There are many different ways parents determine how much allowance to give their children. Some give children a dollar amount that’s half their age or $1 for every year, while others base allowance on their budget and their children’s discretionary spending habits and needs.

Whatever the allowance plan you set up for your children, you need to be intentional. Here are some suggestions for how to teach money management concepts to your children through their allowance.

Set up an allowance budget.

If you stop at giving your children money every week and provide no guidelines on what to do with it, they will probably spend it…all of it. While allowance is designed to be spent,  letting your children spend 100% of their income can make it harder for them to save when they reach adulthood.  Many financial advisers suggest requiring your children to save 1-10% of their allowance for short-term as well as long-term goals. With older children, it’s also good to set up a college fund they can contribute to.

  • Teach your children how to save, even at a young age, by letting them use their allowance money for a special toy or game.
  • Instead of covering the full cost of your teen’s first vehicle, have them contribute towards it.

Make clear what your children are expected to pay for with their allowance, and keep it realistic. For instance, your 10-year old probably isn’t going to be buying her own clothes, but your teenager will.

Provide incentives.
Just as we adults are lured to work harder by the promise of overtime pay or a bonus, you can teach your children to be motivated to work hard with the promise of a reward.

  • Offer bonus allowance for completion of extra chores
  • Hire them to be your personal assistant for a day
  • Reward academic diligence, whether getting good grades all semester or completing all homework on time

Don’t bail them out.
It’s easy to overspend, as well all know, and your children will undoubtedly do it from time to time. Whether the consequences include failing to save enough for a special outing or purchase or being unable to go to the movies with their friends, don’t give in to the temptation to bail them out, especially if they’re repeat offenders. Children whose parents always cover them regardless of their irresponsibility with their allowance learn to lean heavily on the assistance of others. Letting them face relatively trivial consequences at a young age may save them larger blunders later on. Your children need to learn to budget their money if they’re going to succeed on their own.

It goes beyond money.
While learning  good money management skills while they’re young, setting habits, and in a protected environment will help them grow into financially responsible adults; teaching kids how to handle their allowance can also help them develop traits that will affect all areas of life, such as:

  • Good work ethic
  • Motivation
  • Personal discipline
  • A sense of accomplishment
  • Frugality
  • Thankfulness
  • Generosity

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