Giving your kids an allowance is a fantastic way to teach them about money and groom them to become financially responsible adults in the future.
They can learn about money concepts such as budgeting, saving, spending within a limit, and even charity or investment. If you have a system where children complete chores to get money, it can teach them about earning as well!
Yes, it’s definitely a good idea to implement this system at home. But as parents, you may be wondering how much you should actually give them, what kind of process they need to go through to receive the money, etc. Read on to find out what experts recommend.
Determine the Amount
Deciding on a number when it comes to allowance will depend on a lot of things. Needless to say, it will be mostly influenced by what you can actually afford to give them based on your family’s income and expenses.
Secondly, you’ll need to decide on what you expect them to use their allowance on. Is it just extra money that they can spend on fun things, or do you expect them to use that money to cover day-to-day expenses like school supplies, clothes, lunches, etc.?
This will, of course, depend on the age of the child and how responsible they are. A younger child wouldn’t understand the concept of needs versus wants. But don’t put off giving an allowance either. According to experts, kids between the ages of 5 and 7 are ready to learn about money and can understand the concepts related to it. Keep in mind that you’ll probably need to increase the allowance as your kids get older.
You can also take into consideration what your child’s peers are getting as allowance. This can be a great starting point to settle on a number that you and your family are comfortable with.
Have a Predictable and Strict Allowance Policy
Just like other family policies, the matter of allowance also needs to have a set of rules that you must follow. This applies to the child and the parents as well. For your part, you should make sure to give them their allowance every day/week/month, as per the rules, regardless of if they remember to ask you or not.
Communicate to them clearly what you expect them to do with the money. As we said, if you want them to use the allowance for daily expenses, tell them that’s all the money they get for whatever time period was decided upon. If they run out of money before the next payday, don’t rush to bail them out. This will teach them about budgeting and saving. If you feel that their allowance is truly not enough to meet their needs, you can consider increasing the amount upfront, but you should avoid giving them extra money when they run out.
You can also encourage them to put aside a small portion of their allowance to save for long-term purchases, a time when they may run out of money, and even charity. Or you can even make it compulsory, for example, one third for saving, one-third for spending, and one third for charitable contributions.
Don’t Associate it with Behavior
An allowance should be something that is constant, regardless of anything the child does. This is why it’s best not to associate getting an allowance with doing chores. This will make them feel entitled to the money, and may even make them stop doing chores and say they don’t want the money anymore.
Keep the chores separate from the allowance; that is, you should give it to them even if they fail to do it. You can implement a system where children do extra chores to earn a bit of extra money but this would only work if they complete their regular chores.
At the same time, don’t make it something that can be taken away as you wish either. Holding back allowance as punishment for negative behavior can make them distrustful of the process. In the instance that your child needs to be “punished”, take away privileges instead.