Parenting Advice – Teaching Kids how to Handle an Allowance

In a previous post I talked about how to educating your daughters about money — and while it’s vitally important that we teach our daughters to have strong financial skills – more and more, women are the chief financial officers of their families – even if they don’t work outside the home. And while earning a lot of money is great, it’s really about how much your able to keep – no matter how much you make, that makes the difference between being financially independent versus financially dependent.

One of the key tools to teach kids about managing money is an allowance. Now, many parents have vastly different opinions on allowances – some parents think it teaches kids to be dependent – after all – at no other time in life will someone just give you money for being you. Other parents think that a regular, set amount of money that belongs only to kids is a key component of growing up – and a great way of controlling the constant stream of “I want…”

Many financial experts agree that giving kids a set allowance and then making them pay for set expenses is a great way to teach budgeting. The base allowance is not tied to doing chores, however many parents will allow kids to earn extra money for an out of the ordinary task (like cleaning out the garage.)

The key to making an allowance a teaching tool is to pick an amount, pay it regularly and have a list of expenses that it must cover. A weekly allowance of $10 might be designed to cover afterschool snacks and food at the local hangout or a weekly video game rental. Part of the allowance could also be saved week to week to allow your child to pay something bigger – a new bike helmet, the cool sneakers or something else he or she really wants.

Some other key tips to remember when giving a tween an allowance:
1. Pay it regularly – and don’t forget. If you forget or are careless with money, you child will inherit the attitude. And remember – your employer would never get away with “forgetting” to pay you. Pick one day a week and have the money ready
2. Pick an amount – many people suggest a dollar a week per years of age. Canvas other parents and find out what they’re doing. Also think about what you expect your daughter to pay for from it – should it be enough to cover the pakc of gum she always wants at the store, or new clothes she wants
3. Draw up a list of what you will pay for versus what she’s expected to pay for – Take a week or two to list out all the things your kids do ask you for and you pay for – from candy bars to meals to movie tickets. Perhaps you can set some ground rules – mom pays for one movie ticket a month, but all others must come from the allowance. Once the list is set, stick to it – when your daughter realizes she doesn’t have enough for the third movie in a month, she might start to think about saving for these things
4. Make it easy to save – some parents like the three jar method – one for spending, one for saving, and one for sharing (or charity). Whether you just want to focus on sharing and saving or all three, make sure there is way for your daughter to separate her money, putting some aside for bigger ticket items and have some to spend immediately.
5. Depending on her age, you may want to encourage her to take some of her saving money and put it away for the longer term – in a savings account that earns interest. Several banks have kid-friendly accounts with low minimums. Find one that will make it fun to save. Encourage this money to be untouchable in the near term (suggest she save it for a really big goal – college, a trip to Italy, her first car).

And remember, in teaching your child about money, you have to let her make mistakes. If she wants to spend all of her spend money on junk – then let her. But don’t give in and hand over more money for the next day’s impulse purchases. If she wants a more expensive item like a shirt, don’t just buy it – encourage her to save her allowance for it (to keep this motivating, help make this happen in a reasonable amount of time) or offer to split it with her – half from savings, half from you.

Don’t tie an allowance to chores – children should help around the house because it’s part of being a family, not because they get paid for it. Do give them a chance to earn extra bucks for out of the ordinary tasks – like weeding the pathway or cleaning out the garage.