It's an age-old question; how much money should I fork over to my child each week as an allowance?
There are many different thoughts on this topic.
While some may argue that household chores are an obligation that should not be compensated monetarily, others insist that tying tasks in with an allowance helps teach children the value of money.
Ultimately, it is up to parents to decide what is best.
In today's society, kids not only have more money, but are persuaded by advertising to make financial decisions at a young age. The habits they develop now can be long-lasting and affect the rest of their lives.
By having their own money, kids will have their own financial experiences, both good and bad.
There is no doubt that, by having their own income, kids will be able to make mistakes and learn from them. With a set amount of money, as opposed to constantly receiving unlimited amounts from mom and dad, children are more likely to not only think about the cost of what they're buying, but also make good choices and appreciate their purchases.
There are a number of general guidelines that can help smooth the path on the road to your child's financial independence.
- When a child exhibits an interest in money and begins to understand it, it is time to consider an allowance. Some children are ready before they reach school age, while others may be as old as 10 before they exhibit the signs. It is up to parents to determine if the maturity level is there for money management.
- When deciding on how much allowance is appropriate, many financial experts recommend paying $1 for each year of the child's age. You may decide on more or less, depending on your region's cost of living and your family's financial capabilities.
- No matter what type of arrangement is agreed upon, consistency is the most important aspect of an allowance. Decide if a weekly or monthly schedule is best. This not only builds trust between child and parent, but also gives your child the opportunity to plan how they will spend or save the allowance.
- Use this opportunity to educate your child on how to best utilize the allowance. Experts recommend that children spend 30%; save 30% for short-term purchases; save 30% for long-term purchases, such as college or a car; and donate 10%. However, ultimately, it is the child's money to spend as he or she wishes.
- If you decide to tie the allowance to the completion of chores, sit down with your child and make a list of what tasks are required before payment. You may want to create a contract that is easier to stick to and outlines in detail the expectations for you and your child.
- Realize that not all household responsibilities should be tied to an allowance. If a child is slacking in these tasks, take away a privilege as opposed to cash.
- It also is best to decide what a child will pay for with an allowance. Is he responsible for clothes? Will he need to finance a day at the movies? It is best for parents to cover food, clothing and other essentials, with the allowance being reserved for discretionary spending. As kids age, their needs and budgets change, so this list will need revising periodically. For example, teens will need clothing allowances, so it may be preferable to establish a monthly or quarterly allowance that is separate.
- Are there situations in which the allowance will be partially or fully revoked? For those tying this money to chores, decide how much you will deduct if a task is not completed.
- Look into long-term savings options with your child, such as a savings or money market account. Many banks offer special accounts geared to kids, which will give them more of a sense of ownership with the bank account. Make sure to educate your child on depositing and withdrawing money as well as accruing interest.
Whether you pay for chores or grades, or provide a weekly allowance with no strings attached, it's important to discuss family finances, saving and spending with children. Rather than leave them to their own devices, this gives kids insight into your expectations and the proper way to handle money.
The original article can be found at SavingsAccounts.com:
Is your child ready for an allowance?