Providing your children with an allowance is a wonderful opportunity to impart valuable lessons about money management. Despite misconceptions, allowances shouldn’t be viewed merely as unrestricted cash given to children in return for chores.
The right attitude towards allowance, coupled with encouraging financial responsibility, can greatly prepare your kids for their future financial obligations.
HOW MUCH TO ALLOCATE FOR ALLOWANCES?
A reasonable guideline is to offer a weekly allowance equal to your child’s age; for instance, a 5-year-old would receive $5 every week. Designating a particular day each week to hand out allowances can prevent children from regarding you as an always-available cash dispenser or pre-empting their allowance.
SHOULD CHORES BE INVOLVED?
It can be counterproductive to directly link allowance to chores, as it unintentionally offers the choice to opt-out from the chores. Naturally, every family member should contribute to household chores without expecting to be paid for it.
Similar to how parents aren’t financially rewarded for regular household tasks such as washing dishes, children shouldn’t expect monetary gains every time they contribute to household chores such as picking up toys or hanging clothes.
HOW TO INSTILL FINANCIAL RESPONSIBILITY
Teaching financial responsibility begins the moment the weekly allowance is given. Help your child divide their allowance into four categories; family tax, savings, charity, and personal spending.
A suggested breakdown could be 10% family tax, 20% savings, 10% charity and 60% spending money. The concept of family tax is to help children understand how income taxes work. Collect this ‘family tax’ into a jar and use the accumulated amount for a fun family activity each month.
For instance, a 9-year-old receiving $9 per week could distribute $0.90 for family tax, $1.80 for savings, $0.90 for charity, and retain $5.40 for personal spending.
Encourage your child to develop saving habits if they aim to purchase a higher-priced item, let’s say a $40 video game. This will be a practical example of saving over 8-9 weeks in order to afford their desired item.
It’s also not a bad idea to let them occasionally splurge their 60% on inexpensive items or treats — the consequent disappointment or frustration can act as a powerful teaching moment.
EMPHASIZING CHARITABLE GIVING
If you don’t regularly donate to charity, consider creating this habit. Giving is mutually beneficial, and I’ve personally found it rewarding, easing my attachment to money.
Your child could regularly contribute 10% of their allowance to a local church, or collect it over the year to donate to a chosen charity. They may find joy in utilizing these funds to donate toys during Christmas drives or supplies to animal shelters.
Do you offer your kids an allowance? When did you start this practice? Have you adjusted the amount as they’ve grown?
