Monday, January 23, 2012

Top Reasons to Give Your Child an Allowance

Many parents have struggled with the question, “Should I give my child an allowance?” This can be a difficult decision to make considering the economy, hit costs of gas, increased prices of food and utilities and other expenses. Many schools don’t teach children about finances. Studies have shown that even children who learn about finances in school are still not fully prepared to manage their finances as an adult. Most children don’t learn how to manage money until they become adults and some still struggle.

Most learn on their own through trial and error. What’s worse is that some parents don’t have good money management skills and therefore can’t pass on valuable knowledge to their child. Today children are smarter and more aware of various topics. Now children develop bad habits at an earlier age so it is even more important to make sure your child gets good advice on how to manage their money. That information will help them when they become adults.

Giving your child an allowance helps them make mistakes under your guidance allowing them to learn from their mistakes without the painful consequences of filing for foreclosure, having bad credit or filing for bankruptcy that many adults experienced who were not taught about money as a child. Here are some tips on how to give your child an allowance.

Start giving allowance
1. In elementary school around first grade or age 7 when children really become aware of money and start asking you to buy them expensive items, ask for fad items or ask for build-on name brand items (iPhone, iPad, iPod, etc.), etc.
2. Give an allowance once every two weeks which coincides with when most adults get a paycheck
3. Explain the rules for the allowance – the money can be used for them to buy whatever they want and they cannot ask you for additional money or ask you to buy them something other than basic necessities unless it is a school related expense.
4. Remember to teach children about giving and saving. You can use the rule 70-20-10. Spend seventy percent, give 20 percent and save 10 percent.

How much at each stage
1. If you already give your children money, add up the money you give them in two weeks and give that to them for an allowance. Let them learn on their own how to manage their money. After they make some mistakes then gently guide them on how to make good financial decisions with their money.
2. Elementary - Give up to $1 a week for each year, i.e. if the child is 10 give $10 for an allowance.
3. Junior High – Give up to $2 a week for each year, i.e. if the child is 13 give $26 for an allowance.
4. High School – Give up to $3 a week for each year, i.e. if the child is 16 give $48 for an allowance.

How to earn it
1. Tying allowance to chores teaches children good work ethics which will mimic real life when they go to work for an employer. If they do extra work and do a really good job it teaches them initiative and that they can recognition or get rewarded.
2. Explain how the allowance is earned. Allowance should be given for doing something extra.
3. Ask for ways they can earn money (babysit siblings, help parents, go to work with parents and help them at work, etc.). Give an allowance for doing additional chores beyond what is expected or other than what they already do, etc.
4. If you have a business children can earn an allowance by doing work tasks (mailings, filing, placing phone calls, organizing your office, etc.) This also helps them to learn about what is required to run a business which will help them when they become adults.

1 comment:

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