Thursday, October 10, 2013

Insightful Tips on Children and Allowance


There is a continual debate on whether children should get an allowance, how much, what for and when. Here is some helpful information to help parents decide. 
How Much
Make a list of what children are expected to pay for with their allowance. Once you have the amount, sit down with your child and make a list of everything they are expected to pay for. This solves the conflicts that may come up when shopping or paying for activities. The total amount needed becomes their allowance. As their needs change the allowance amount should also change. Be willing to review the allowance amount as needed, i.e. if they get a part-time job, etc.

How Often
Allowances should be paid on a regular schedule. Weekly payments may be easier for middle school children because they are more prone to instant gratification and do not have strong budgeting skills. Bi-weekly payments may be easier for high school students because they will have stronger budgeting skills and better understand the consequences of their spending habits in the future.

Tied to
Chores should not be tied to allowances. If they do not do their chores they should be reprimanded but should still continue to receive an allowance.  Chores should be performed because they are part of your family and children should want to help. This will also help them learn how to a team player and give without expecting something in return.  The purpose of providing an allowance is to give your children the opportunity to learn how to manage money through their own mistakes and successes along with parental guidance.

Best Practices

  1.  Discuss. Have regular family meetings to discuss household finances, mistakes made and lessons learned.
  2. Say No.  Teach children about the value of money. Don’t say yes every time they ask for money or when they want you to buy them something.  This helps them learn that they cannot always get what they want and reduces instant gratification urges.
  3. Real life.  Use real life experiences to show children how to spend money.  Sit them down with you when you are paying bills.  Take children shopping and have them use a calculator to total up all items purchased. Take children with you to the bank or ATM. Show them how to deposit a check and take money out of a bank account and the ATM.  Show them the receipt and let them know about deposit limits, fees and you can only take out the money you have in your account and consequences of overdrawing your account.
  4. Spending. Teach children about budgeting and saving to purchase items with cash instead of credit. Show children the benefits of paying with cash instead of with credit. Show impact of how buying what they want impacts the household budget.  Take them shopping and show them how to comparison shop. 
  5. Wish List.  Ask them to create a wish list of items that are “wants”.  Ask them to think about things they want to buy and how it will impact the household.  Ask them to consider if the item is a need or want.  Wants can be delayed for purchase at a later time.

Mistakes to Avoid
  1. Tying allowances to chores. If your children begins doing chores for a relative or neighbor who pays more than you do for chores, the child will have to decide do I stop doing chores at home? This is not the message you want to send.
  2. Paying for grades. This prevents a false sense of reward.  Children should get good grades and want to get good grades.  In school children are not rewarded for good grades. In life you may not always get rewarded to doing good.
  3. Preventing children from making and learning from their mistakes. Don’t be too over-protective with children. It’s easier for them to learn from their small mistakes now than to learn from massive mistakes in the future such as applying for student loans.
  4. Shielding children from financial crises and financial obligations furthering the misconception that “money grows on trees”.

Use Allowance For
Parents should communicate to children the reason they need to do chores is because they are a family and each family member has to contribute to help run the household.  An allowance is used to teach children how to handle money. However, you can also give children the opportunity to supplement their allowance by doing extra chores.

Teach children that an allowance can also be used to save money.  If your child asks about saving help them setup a savings account.  Children that don’t want to save may need encouragement. Gently suggest donating at least one percent of their allowance to a savings account. The money can be used to make purchases after they spend their allowance.  Assist children with creating short-term and long-term goals savings goals such as clothing, shoes or something else. This will teach them that they don’t have to buy everything right away. 
Benefit of Allowance
Giving your child an allowance helps them make mistakes and helps them learn from their mistakes without suffering terrible consequences that many adults experience such as bad credit or filing bankruptcy.

An allowance is a child’s only source of income and is their first lesson in learning how to manage money.  An allowance helps children learn how much money they have, can spend and can earn (if deposited in a savings account). An allowance helps children learn how to make better spending choices for things they want.  Allowances can help children understand how to budget and save. Children that receive regular allowances can learn to plan ahead and anticipate their spending needs which allow them to make choices about items that are most important to them.

Here is an allowance calculator to help you determine an amount

No comments: