As a parent, there’s a conversation you’ll have to have with your children at some point--the talk about money. Allowances, to be more specific. How important are they? When should children get an allowance? How much allowance is the right amount?
If you’re hesitating over the issue, think of it as an important tool for teaching budgeting, which is a key life skill for a healthy financial future.
Teaching young people to make wise decisions about spending and saving in their early years will help them in becoming financially responsible adults.
Children as young as kindergarteners are ready to handle receiving a simple weekly or monthly allowance. How much allowance you give is up to you, but the amount matters less than the discussion about how the money is used. The point is to let your child practice managing a regular flow of money.
Starting out, let your child decorate three budgeting jars: One each for spending, saving and charity. Then, have them split their allowance between the containers. How much they put into each jar is up to you, but an equal split keeps it simple for young learners. Be consistent and give the allowance at the same time each week or month to help them plan their savings and budget.
The spending jar is for cash to purchase whatever they want, whether it’s a toy or stickers or a much-desired treat. If your child wants to blow it all on candy instead of waiting for the funds to buy a bigger or more practical item, that’s their prerogative. It’s better to learn lessons such as delaying gratification now instead of after they’ve flown the coop.
The saving jar is for longer-term goals, such as a toy or activity that requires a larger sum of money. Encouraging them to save for something they’re passionate about will help motivate them.
The same goes for the charity jar—it’s important to let them choose the organization or a cause they want to donate to. This jar is a way to direct spending based on values and teach them the importance of making the world a better place.
There is debate about whether an allowance should be tied to chores. Regardless of your stance, let your child know what chores are or aren’t covered by their allowance and what chores they’re expected to do simply because they’re a contributing member of the family.
Similarly, as your children age, you may decide to increase not only their allowance, but their responsibility for expenses (such as clothing, phone plans, entertainment, gas or car insurance). If you do, be clear about what their allowance is expected to cover. Older children should also understand when receiving their allowance will end, be it at a certain age, when they get a job, when they graduate high school, or when they get their own credit card.
Your allowance strategy can and should evolve as your child grows. But if you’re able to instill the concepts of earning, spending versus saving and the importance of giving, this approach is a great start.