Teaching kids the value of money and the importance of saving and budgeting should start at a young age with an allowance, experts advise.
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“Allowances teach them an understanding of everything from budgeting to understanding this is how the world works and an appreciation for material goods,” says Andrea Ramsay Speers, a psychotherapist, parent coach and founder of Oakville Family Institute. “There’s no downside to being smart about money.”
Instituting an allowance teaches your child delayed gratification and how to save and budget. Whether you pay your kids for chores or give them responsibility for some of their expenses, experts agree handing out an allowance is an effective way to teach children how to be responsible with money.
Paying for chores can be problematic, says Jeff Eusebio, CEO and co-founder of Familymint.com. “If one looks at a family as a unit that all should be working together and helping out, then a basic set of chores should be viewed as the responsibility that comes from being a productive, contributing member of the family.”
He suggests rewarding children for doing extra chores outside their normal duties. “If the child wants to earn extra spending money by doing extra chores, this is a sign of initiative that definitely should be encouraged.”
Experts say a better allowance system is to put a child in charge of a particular expenditure. For instance, have the child pay for their clothes during the school year. Every week, month or every other month, give your child the allocated money for his or her wardrobe to budget. This not only teaches kids the trust costs of goods, it teaches them how to prioritize and balance needs versus wants.
If a child spends the clothing budget too quickly he/she now has to wait to next month’s allowance to buy new clothes and learns the concept of delayed gratification, says Ramsay Speers.
Put younger children in charge of budgeting smaller events like the weekly donut stop made after school or the ice-cream cone after sports practice. “Keep in mind the objective is to give responsibility expenditures in an age appropriate way,” says David McCurrach, author of Magic: Turn Your Kids Into Money Wizards. “If they are 5 or 6, it’s limited [with what they can handle] but if they are 12 or 13 it’s fairly extensive.”
Having an allowance strategy is one thing, figuring out when to implement it is a little harder decision. Money experts advise an allowance be used as a teaching tool and not viewed as an entitlement.
As soon as your child can understand the concept of money, start instituting the program, which usually happens around 6 or 7, according to Eusebio,
How much you pay also depends on the child’s age. According to Jeff from FaminlyMint, the average family pays 50 cents a week for each year of the child’s age. For example, a 6 year old would get $3.00 a week while a 10 year old would get $5.00 a week.
“Every family and every situation is different and allowance rates need to take this into account,” says Eusebio. “It's important to not give too much because this can give the impression that money is easy to come by [but avoid] giving too little because this can harm the ability to learn from the experience.”