As a parent of two young boys, a hot topic around our house has been when do we start giving them an allowance? Our aim is to have our children learn the value of money and the consequences of their financial decisions through saving, giving, and spending. The book Yes, You Can Raise Financially Aware Kids, is incredibly insightful for determining allowances in our family. Here are a few key points from author Jack Jonathan that assisted us.
Preparing to Give an Allowance…
Decide on your allowance philosophy. What philosophy best suits you and your family.
- Do you want to show your children that they must work to earn money?
- Do you feel family chores should be performed without expectations of money?
- Are you organized enough to keep careful track of chores performed or would you prefer to provide an allowance without expecting anything in return?
Based upon your answers you may have an allowance that is more like a salary or one that is incentive only or possibly a combination just make sure it fits into the family budget. Whichever strategy you use just make sure it is communicated to your child.
Noticing Allowance Readiness…
Most kids are usually ready around the age of 5 or 6, when they begin to understand the value of coins and paper money or collecting their coins in a piggy bank. Your kids may also be asking for “luxury items” like new toys, iPads, or expensive clothes. If your children are displaying these traits, most likely they are ready to have an allowance.
Determining How Much and How Often…
A younger child would probably be better suited to have a weekly allowance. This allows them to keep short-term goals and a better chance for success. As your child ages, the allowance period can extend, which will give them more budgeting capabilities.
- How much of an allowance will be determined by your own income and for what expenses your child will be responsible?
- Will they be responsible to pay for snacks, books, gifts, toys, and electronics and so on?
Even if your household budget is tight, you can pass on some regular expenses to your children and have them pay a portion of the costs from their allowance.
Setting the Allowance Rules…
Before you begin, make sure you communicate the expectations you desire from your child to learn about handling and managing money:
- What amount will be set aside for savings?
- Will this be a dollar amount or percentage?
- For what do you want your children to save?
- College, gifts or other big item purchases?
- Do you want your children to set a portion aside for charity? If so, how much?
- Will you allow advances or consider special circumstances?
The most important takeaway from this is, regardless of your child’s age or the dollar amount, starting an allowance is one of the best financial educations your child will receive. Whether you start with $.50 or $10, it does not matter, you can always make adjustments later.