Allowance and money management
An allowance is money earned or given to a child at regular intervals to teach the child how to manage money.
Parents differ in their opinions about giving allowances to their children. Some parents believe that they should provide for the material needs of their children, and there is no reason a child should have to manage money until they are old enough to understand the working world and mature enough to make responsible purchases. Other parents feel that giving their children allowances is a good way to teach them about money and financial responsibility. If parents decide to give their children allowances, there are several ways to do it. How much they receive, how often they receive it, what they may spend it on, and whether the children must earn their allowance by completing chores at home are all questions for parents to consider.
School-age children are starting to develop the cognitive skills necessary to understand basic monetary ideas, such as identifying coins, counting change, and matching small amounts of money to items they want to buy. Apart from introducing children to basic economics, money lessons have other benefits. Money illustrates parental values and teaches children about the relative worth of things, time, and effort.
When to start an allowance
Children younger than five are not mature enough to understand money management. They usually resist saving money and tend to spend money right way. Older children are more likely to take responsibility for their money. As they learn math skills, children are more able to calculate expenses. They can begin to figure how much they need to save for a item or how much they will have left over after buying something.
By the time children are five or six years old, they may be responsible enough to handle small amounts of money. Before starting an allowance, parents may discuss budgets with children and what children want to buy. They may shop with their children in stores on online and discuss prices.
The amount of allowance is a personal choice for parents. Young children may be given one or two dollars, while teenagers may be given ten dollars or more. Some families will give close-in-age siblings the same amount of allowance, but general practice is to give older children more money than younger children.
Young children may be given enough money to buy small items such as trading cards, hair clips, or ice-cream bars. The next time parents go shopping, the children can bring their own money if they think they might want to buy something. If they have already spent their allowance, then they have to wait for the next allowance before buying something else.
Building financial skills
Parents may want to reinforce lessons the children learn in school by making a chart that shows basic money equivalents. They may choose to post it on the refrigerator or in the child's room. Playing store and putting price tags on things around the house teach children relative worth of items.
Like adults, children may have trouble saving money. If a child wants to buy an item that costs more than his or her allowance, parents may choose to be flexible. They can allot the child an extra allowance or help the child figure out how long it would take to save the amount from future allowances. Parents may offer to provide matching funds, contributing a dollar for every dollar the child saves.
Some parents devise a category system to help their children manage their allowances. The first category is short-term expenses, money the child may spend right away on whatever he or she wants. The second category is savings, money put in a special jar, where its gradual accumulation is visible. This money is used for items the child wants that cost more than the weekly allowance. The third category is charity, money for church donation or a local cause, for example, or for gifts. The parents may decide how a younger child's allowance should be divided among the three categories, or the budgeting may be left up to an older child.
Allowances and chores
Many people believe that child's allowance should not be tied to household chores. Children should help out around the house because they are part of the family , not because they are paid. Allotting children chores that are proper to their abilities teaches responsibility and makes them feel the worth of their contribution to the family. The sense of belonging and empowerment gained by being an inherent part of a family team is important for children. Children learn to contribute something valuable and realize that others depend on them to do their part. This relationship raises self-esteem and allows children to see themselves as active and valuable participants in others' lives.
Guidelines for spending the allowance
If parents expect children to pay for their needs, such as school clothes, sports gear, music lessons, or a comic book collection, or services the parents would otherwise pay for, the allowance has to be large. These items should be in the budget developed with the children's help.
Children need to learn that they can increase the money they have by saving it or working for it. Parents may create a list of jobs children can do above and beyond their regular chores, listing the amount of money the parents are willing to pay for these jobs.
Some parents stop giving allowances to their teenagers at a certain age and encourage them to get a part-time job. Although teenagers may earn money from jobs outside the home, they may still need parental guidance to develop correct spending habits. They need to know how to save money and give to charity as well.
Parents can be authoritative without being dictatorial in teaching their children how to manage money. They can invite suggestions from the teenager about what he or she should buy and how much money to spend on it. Teenagers may be asked to buy gas for the family car when they drive it to work or to social events. They may be asked to use their earnings to pay their telephone service if they own a cell phone and to buy gifts with their own money for their friends and for the family.
Some families put teenagers in charge of all their own expenses, so they learn to budget. But some parents also maintain that teenagers should not take large sums of money from their account to make important purchases such as a car or motorcycle without parental permission. Money can become a difficult issue between parents and children of any age, and learning to be flexible can help each member of the family become more financially responsible.
Children's financial education extends throughout childhood. It occurs as they listen to parents talk about money; in their parents' wage earning patterns; and in their increasing experience with earning and spending.
Children can absorb a lot of knowledge from their parents about money management. Parent can play money games with them, using mail-order catalogs and price tags in stores, to teach values. When children are old enough, parents can discuss banking and investments. Rather than let children keep their financial gifts in a piggy bank in the house, parents can help children open a passbook savings account or a mutual fund and let them file the receipts for these accounts. Parents can also discuss with their children the impact of advertisement on personal spending habits and introduce their children to consumer advocacy publications such as Consumers Report .
Budget —A summary of income (allowance) and expenses (spending) for a given period of time.
Charity —Giving money or providing help to the poor and needy. To make a donation of money to a religious organization.
Chores —A small or minor job; a routine duty of a household or farm.
McCurrach, David. The Allowance Workbook: For Kids and Their Parents. Franklin, TN: Kids' Money Press, 2000.
——. Kids' Allowances: How Much, How Often, and How Come. Franklin, TN: Kids' Money Press, 2000.
Orman, Suze. The 9 Steps to Financial Freedom. New York: Three River Press, 2000.
Aliene S. Linwood, RN, DPA, FACHE