When it comes to good money sense, it’s never too early to start. Giving your kids an allowance may seem old school, but it is a great way to teach them about budgeting and handling their own funds. I’m not talking about 5 cents a week, nor do I mean to give your kids $100 a week. I’m talking about giving them the right amount so that they can learn to purchase their own things, and budget wisely for them.
How to Do This Allowance Thing
There are a couple ways you can start an allowance system in your home. You can make your kids earn the money, as in assigning chores for them to do. This can be a good idea as it teaches your kids that they have to earn money. However, some may argue that kids shouldn’t be rewarded for helping around the house, it should be expected.
You can choose to give them a weekly allowance just because. Not as a reward, but just because you want your kids to handle money. At first, I’ll bet your kids’ eyes will light up with wonder at their new found wealth, but they will soon learn how fast money can be spent.
If you go this second route, you can also choose to reward your kids with a little extra money if they do something spectacular that is above and beyond their normal duties. If your child spends majority of the day helping you clean the house without being asked, you can reward him with a little extra cash. It’s a subtle way to show that money should be earned.
Is There a Magic Age to Start?
There is no definitive age to start giving your child an allowance. I know; you were probably hoping I would give you a straight answer. But I can’t, because there isn’t one. It really is a case-by-case thing.
A good rule of thumb is to start when your child is old enough to understand the concept that money is used to buy things. Whether they are old enough to count and understand the value of each coin is up to you, but the desiret to attain things and the understanding that money buys those things is important.
What About the Amount?
Again, this is going to be up to you. If your child is school-aged, you can poll your neighbors and friends to see how much they give their kids. You wouldn’t want your kids to get considerably less or more than his friends. Yes, the idea is learning about money. But we all know what it’s like to be on the short end of the spectrum, and it’s not fun.
National averages are about $1 for age 5, and raise about $1 per year. You can follow suit, or make a rough list of the things you know your child will want to buy, and price your allowance according to how long you want it to take for them to achieve it. For example, if your child wants to work towards a toy car that costs $5, you can decide if you want them to be able to earn that car within a couple weeks or over a period of 5 weeks.
Get Ready to Be the Negotiator
Once your child realizes what money can buy, they may start asking for more. It will up to you whether or not you want to oblige, but try to be reasonable with your decision. For example, if you expect your son to pay for his own admission to a theme park or a movie, but he is at the age where his ticket will now cost more, you may need to compensate the rest or raise his allowance to accommodate the higher price of things.
However, there should be a good reason for raising the amount you give them. Reasons like “I need more” and “so-and-so gets this much” don’t hold much water. When your kids come begging for more, stand your ground. If your daughter gets a reasonable amount but has spent it all in the beginning of the week, refuse to give her more money. Remember, the allowance is a tool to teach your children about money management and budgeting. Instead, use it as a learning opportunity. Remind her that if she had minded her money, she would have enough for the whole week.
Allow Them to Earn More
There will be times when your child will ask for something a bit more costly than that $5 toy car. Rather than dishing out the extra money for it, give your child the chance to earn more money. Yeah, I’m that mean. But trust me; your kid will love the item even more because he worked hard for it. It will be much more rewarding.
So, you can either have your child save up their $1 allowance for the expensive item, which may take a long time. At this rate, he will give up on the whole saving thing and the valuable lesson about saving up and earning rewards will be lost.
Instead, you can suggest extra chores around the house that your child can do to earn more money each week. Make a list of things to do around the house, and assign them monetary values. Let your child pick what they want to do. They will know exactly how much each task is worth. They want to earn money faster; pick the harder, higher valued chores.
Another method is to start a 401(k) for your child. Not a real one, but one at home. Whatever money they put it the fund, you as the “employer” and chore-assigner will match. It will teach them that saving really does pay off and it’s a brief intro in the concept of interest.
An allowance is a great way to teach your children about money at an early age. Not only does it show them that everything costs money, but it will teach them that they need to earn the things they want. Starting an allowance at an early age teaches kids how to manage money wisely and how to budget the money that they do have in order to get everything they want.