Help your kids learn to manage money by teaching them how to budget a weekly or monthly allowance and savings
How to guide kids’ use of allowance
Today’s kids have more discretionary income than ever before. Their purchases account for a hefty percentage of consumer spending in the United States.
On a parallel track, household credit debt is on the rise, with the average family using two or more credit cards routinely and maintaining an estimated credit balance of $6,000.
To help kids learn at a young age how to manage money and prepare them to become responsible adult consumers, it is wise to train them early. You may want to give them an allowance when they start school or reach age ten, or when they reach another maturity landmark. Some parents expect children to “earn” their allowances by handling several weekly household chores. Other families simply hand children a certain amount of spending money for video rentals, sports equipment like skates, and fun times with friends, while chores are performed independently as part of expected household functioning.
Each family may choose a varying amount of allowance. A rule of thumb used by some is to award fifty cents weekly for each year of a child’s life. A five-year-old would thus be entitled to fifty cents times five years ($2.50) per week or about ten dollars per month. Each family should work out a budget that is compatible with their values and goals. For example, a twelve-year-old who helps to baby-sit a younger sibling while a single parent works as well as cleans the entire house each week may be paid more than another child who doesn’t do as much.
If you decide to give your child an allowance or spending budget, explain carefully what the money is to be used for. You may want to provide these guidelines in writing in case one of you forgets later. Include a sentence or two about special occasions, even if it is just to say that these will be handled on an individual basis.
Paying for housework can be regulated by posting a work chart for quick reference by payer and payee. Work should pass parental inspection before wages change hands. Correlate each child’s duties to his or her age and abilities, gradually increasing responsibilities. By age eighteen, an entire household can be managed, thus equipping the child to enter the adult work of full responsibility.
When you begin paying allowance, help your son or daughter make a workable budget. Depending on age, line items may include toys, recreation, name brand clothes, music, and transportation costs. Insist the child follow his or her budget, so that if extra spending occurs in one category, the parent does not add more to another, but allows the child to feel a pinch; that is how one learns.
Open a savings account in joint names (parent and child) at the local bank and arrange monthly deposits from a portion of the allowance. Ten percent is an effective starting amount, with the option of adding a certain percentage of special cash gifts for holidays or birthdays and increase savings each year. Another possibility is to open a kid-level investment account, which can be done online. Do an Internet search for children’s investment programs and see what is available. If you open an account of this type, help your child monitor a favorite stock and track the account’s movement.
Remind children to be frugal. Rather than rushing out to buy a long-awaited video game when enough allowance has accrued, suggest checking sales ads to find the lowest possible price. Mention that they can always save a few months of allowance to buy a pricier item.
Train them to help others. Donating to a charity like the Salvation Army curb collectors at Christmas or giving to a church missions program helps children learn the value of assisting others in need. Take them to visit a soup kitchen or another social service area so they can learn how important it is to contribute to other causes.
Money management is the ultimate tests of financial maturity. Start while your children are young so they can build a solid future by developing prudent spending and saving habits.