Kids' allowances are not a new idea but parents still struggle with the logistics. Parents wonder how much allowance is acceptable or should chores be aligned with the allowance amount. Many questions arise about allowance because money management is a difficult concept to master.
Financial education for children is a valuable skill to teach at a young age to reduce the risk of a child developing bad money management skills. Kids need to learn how to save, share, and spend their money.
Allowance Amount for Kids
The amount of money given to a child is dependent on a few factors. Allowance amount for kids should align with the parents' budget. Parents need to budget in the weekly allowance amount into the monthly budget. A few dollars add up and with more than one child in the household it can easily climb to over $100 a month. Parents should not feel bad if the amount is different from other families. Children need to learn that money amounts are different in each home.
Another factor is the age of the child. A five year old should not be given $10 a week as the amount is difficult to comprehend at that age. A good rule of thumb is to give a dollar per year for her current age. For example, an eight-year-old receives $8 while a twelve-year-old will receive $12 a week.
Lastly, parents can add up all of the annual expenses of their children. Expenses include school trips, clothing, movies, treats, and much more. After expenses are added up it is divided by 52 for the 52 weeks in a year. This last method is a difficult way to assess the amount of allowance for a child.
Giving allowance is a wonderful teaching tool, therefore it is important to guide a child on how to use the money. Kids can spend, save, and share the money. At first, kids will want to spend the money as quickly as they get it. Children will not think about tomorrow but only about the moment. It is important for parents to teach them about the future.
Saving
Many financial planners recommend adults should save 10% of their income. Children should learn about saving 10% to teach them about spending only 90% of their allowance. In the beginning it may be difficult for the child to let go of this amount. Parents should only recommend like financial planners and suggest it on a continual basis. Parents should not pressure the child into saving, otherwise negative feelings will be associated with this money management skill.
An option to encourage saving is to match the saving amount. Many corporations encourage employees to save by matching the amount for their 401(k) plan or RRSP plan. Encourage the child but make sure he is aware it is locked up until he is eighteen.
Sharing
Sharing is giving money to charities. Children are often asked for money to support one cause or another. Notes come home from school and parents give the child the money for the donation. Often this type of giving does not affect a child as she is only the carrier of the money and not the giver.
To encourage sharing let the child support a cause closer to her heart. Parents can show a child the many charities across the world. Give the child the opportunity to choose a charity that speaks to her. After a child sees the distress of an animal or another child, he is more than willing to support the cause. Some children may want to share all their allowances with a charity but it is important they save and spend as well.
Spending
Spending is an act children see on a continual basis. Children rarely witnesses a parent giving money to a charity or saving money for another day. Children watch as parents take out cash, debit cards, and credit cards to make purchases. It is important for children to learn that the use of a credit card usually means overspending. A child rarely sees the credit card bills but it is important for her to learn to spend only within her means.
A child may ask for an advance. Giving an advance is a wonderful opportunity to teach about credit cards and interest rates. It is a gift to teach a child that credit cards are not free money and people actually spend more for the product. Once the interest is added is the child willing to spend the extra money or will he wait?
Teaching money management is a lifelong gift. Parents should set the allowance amount for their children and teach them about saving, sharing and spending money. A child will experience less financial woes with proper financial education from her parents.
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