Giving kids an allowance is a time honored tradition as old as, well, having them make their beds or set the dinner table. But for many of today’s families, the ritual can create a lot of stress and apprehension. A recent field study by Kidworth.com found very few parents are actually giving their children a steady allowance. It was as if "allowance" had become the new dirty word in parenting. That’s right. The "a" word.
The most common fears they shared were that it would lead to power struggles between the kids and parents – or just amp up the materialism that kids today can already possess. One mom said her kids don’t need allowance: She buys them everything and, that way, she can control what they get. But that doesn’t teach her children financial literacy. How are kids going to learn to be responsible at 18 with their own credit card if they’re not trusted and taught how to manage a few dollars a week at age 10?
Most financial and parenting experts agree: An allowance is a healthy way to give your children financial skills that they can carry on through their adult lives. It’s only a dirty word if you make it one!
Here are five tips on how to give your children an allowance.
1. No wages for chores
Don’t tie an allowance to doing chores! That’s right: Your parenting fears are well founded. This instantly turns allowance into a power struggle – something parents have enough of already. An allowance should be an independent stream of income, used as its own learning experience, not a facilitator for others.
2. Age and amount
Start at the right age, with the right amount of money. Most experts suggest one dollar for every year of a child’s age. So a 5-year-old would get $5 a week. Five- and 6-year-olds can start to grasp the concept of saving and spending money. Seven- to 12-year-olds are really in the sweet spot for starting healthy financial habits – they want to buy things and are becoming increasingly good at math.
3. Eyes on a prize
Have some short-term goals – toys, candy, games, etc. But suggest some long-term spending goals that you know will come up – electronic gear, a bike, expensive clothing.
4. Bigger picture spending
Use an allowance as a real teaching opportunity. Let your child pick a charity and donate to it every few months. Start a college or private school savings account that they can contribute to. Even if it’s only a small portion of the real money you’ll need, let them feel what it’s like to save for these important life goals. Money guru Warren Buffett says he bought his first stock at age 11, so you can never think too big.
5. The system
Develop a system and stick with it. Some people use a three-jar method for saving, spending and donations. Others have bank accounts. The goal center at Kidworth.com offers tools to help families manage their financial habits online.
The most important thing to do is be active about your children and their money. When approached correctly, "allowance" doesn’t have to be a dirty word, it can be a positive partnership between parents and their kids that will last a lifetime.