Monday, November 23, 2009

Give Your Kids An Allowance

Tip #210 - Give Your Kids An Allowance. Giving your children money allows them to have practice with it. And their having it, using it, losing it and experiencing spending it will hopefully lead them to using money wisely when they are older. If a child doesn’t use money on a regular basis until he gets a job when he is fifteen or sixteen years old, how can we expect him to know what to do with it when he is an adult at 18 or 21 with just a few short years’ experience? It is only with practice that a child will get better at spending and managing money. Like with most other things, it takes practice and experience to learn how to handle money. If you agree with me on the above points, you might have some questions about giving an allowance to your children.

Should Children Earn Their Money? Some parents feel that allowance should be tied to chores or extra jobs around the house because that’s more realistic how adults earn money in the real world. Others say it’s okay to give them a set amount on a regular basis for nothing in return. After all, chores are expected to be done regardless, and the money is a separate learning opportunity. I don’t think there’s anything wrong with giving children money for doing nothing in return. After all we give them clothes and food for nothing in return. That’s not realistic in the real world either. But regardless of whether you decide to tie money to chores or not, the most important thing is getting your kids to start handling money when they’re young.

At what age is a good age to start doling out allowances? It seems most experts suggest about age 5 or 6. Of course some of it might depend on your child’s personality and maturity. In their younger years, the child may not have much understanding of how to use money, and it may just accumulate in their piggy bank. By the time they are 7 or 8 years old, however, I guarantee that most children will have many plans for their money. And that’s when the teaching opportunities will abound.

How much money is the right amount to give? A lot depends on your family’s income and what your spending habits and values are like. A millionaire family may feel comfortable giving their child $10 per week, while a working-class family might choose to give $1 or $2. Also, you may want to think about what your child will be buying with the money you give her. If you expect her to buy lunches at school or clothes, you might want to give more. If you are just giving it to her for extras like candy and toys, then you might give less. The younger the child, the less they need, in general. Overall, a few dollars per week is probably more than enough for most children under 10.

Should we tell the child what to do with their money? I think it’s best to guide your children in their use of it, but don’t force them in how to spend it. It’s often the mistakes we make that are the greatest learning experiences. Many people tell their children they can spend half and have to save half. Some families make their children put their money in three categories of money – spend, share, and give. While I like the concept of both ideas; I don’t think we should make our kids do anything with their money since it is, after all, their money. Instead, making suggestions of how they might manage their money is better. Teach them that saving money will lead them to having the ability to buy bigger items at a later date. Share with them that there are others who are less fortunate than we are, and that it’s a good idea to share a certain percentage with charities. Explain how you the parents manage your money – how you divide your spending, saving, and giving, and encourage them to do the save. Giving children money is a teaching opportunity. And guiding their use of it is a better teaching tool than forcing them how to spend it.

Not everyone believes in giving children allowances, but when you look at the overall expense of it – it could be less than $100 per year – the learning opportunities it presents are worth it. We give our children clothes and toys and expect them to take care of them by treating them with care. We give them jobs to do and hope they’ll learn how to properly set a table or rake a lawn. Then why not give them money and encourage them to manage it well? How else will they learn if not by giving them a hands-on opportunity to do so?

In Real Life (IRL) – Our three children are ages 8, 4 ½, and 2. We started giving my oldest daughter an allowance when she started kindergarten at age 5 ½. But she wasn’t really interested in the money, and her lack of interest led us to me less than consistent with giving the money to her. But as she approached age 7, her understanding of money increased dramatically. She started asking for things that were more than I wanted to give her. And I figured out it was time for her to have some spending money of her own. My husband and I devised a plan. Every Friday before we usher in Shabbat, we would give each of our children an allowance. Deciding an appropriate amount presented a challenge – we didn’t want to give a lavish amount but enough that she could build up her earnings to buy something nice if she wanted to or buy some small frivolous items more frequently.

We came up with a system – for each number of years old they are, they get a quarter. So our 7-year old daughter would get $1.75. Our 4-year old would get $1, and our 2-year old would get 50 cents. When our 7-year old turned 8 two weeks ago, she began getting $2 per week. Our total expenses for the year for giving allowances – about $175 – not bad for the teaching opportunity it presents us. We feel by the time she was 16, $4 per week will be more than adequate, and she can supplement it with a summer job, babysitting, or something similar. By the time she is ready to go off on her own, we will hopefully have prepared her well enough to manage her money.

Obviously, our 2-year old has no understanding of the money given him. We just deposit 50 cents in his piggy bank each Friday. Our 4 ½ year old understands that money is worth something, and enjoys receiving the dollar and putting it in her bank, but has not asked about spending it yet. Our 8-year old, on the other hand, discusses each week how she will be spending her money. She discusses her ideas with me, asks me how much things cost. She questions how long it will take for her to save for a certain item – a camera, a doll, etc. And she never forgets on Friday afternoon to remind us that it is allowance time. While I haven’t forced her how she must spend her money, I have disallowed a few items that she asked to save for that I felt were inappropriate. She has shown some interest in sharing some of her money – but to date only those she knows – like her sister or her friends. She has bought some things with the money she has earned, and she has saved a good portion of it, too. She enjoys thinking about how she will spend it someday – and her ideas of how it will get spent often changes on a daily basis.

While I am obviously not an expert on how allowance works – I haven’t done studies on thousands of children to see if those who receive allowance as children do better managing money than those who don’t. I cannot imagine that the experience we are giving her with money cannot be doing anything but helping her. If she wastes her money, she will learn how long it took to earn it only to be lost on something useless. If she saves up for something nice, she will learn the patience it took to save for that item. Having her own small amount of money to manage will hopefully teach her how to take charge of large amounts of money when she’s older. Do any of my readers give allowances? Care to share your experiences?


Sheila said...

For a long time I gave my kids an allowance based on their age. I became frustrated over the fact that neither of them wanted to do the chores that they were supposed to do - making their beds, etc. I was constantly having to remind them. I took away their allowance, and instituted the 'stick' system, something I had read about on someone's blog somewhere. I have a jar of popsicle sticks with jobs and monetary values on them. They include things like 'vacuum upstairs', 'make bed', 'read for 30 minutes', etc. Whenever they do the item on the stick, they can put that stick in their own jar. Payday is Friday. It has been interesting to see my younger daughter consistently make more money than her older sister, both because she is willing to do more things, but also because my older daughter doesn't bother to put sticks in for things that she already does, like making her bed and reading. My kids could both get a minimum of $3.50 a week for just making their beds and putting in sticks for the reading that they do. They are both readers - this isn't even something that I'm trying to get them to do. I really like this method much better than just giving them an allowance. I think they are learning more, and I have certainly learned a few things about them as well.

Susan Ahlfeld said...

I agree on teaching kids about money early and saving early. I'm a certified financial planner and a mother of a 18 month old. I recentently wrote a book teaching children (5-9 years old) about the financial planning process. Starting this concept early builds a possitive relatitionship with money. I would love for you to review my book and let me know what you think of it. I would be more then happy to send you a copy.

katia said...

I discover a great game to Kids, EKOMINI, It’s an interactive educational game in order to learn about financial literacy.

This web-enabled Piggy Bank is connected to a computer and the Internet.

Through computer games and interactive storytelling, kids learn about earning and saving, spending, sharing and investing their money.

Really it’s a great projet, my kids are so happy with this toy.
To know more, I recomend you to visit ekomini (dot) com

or ekomini (dot) com/blog or

…remember that Christmas is coming and you can offer this to your kids!!!