Learning a new skill takes practice. For instance, if you want to teach a child how to ride a bike, they will need a bike to practice on. The same is true of money skills. If you want your child to learn how to save money and spend it wisely, giving them an allowance will help them practice.
Here are some ideas to help you and your child get the most out of their allowance.
Timing is everything
When your child starts to understand the concept of money and its purchasing power (usually around age 5 or 6), it might be a good time to consider introducing an allowance. If they can’t get to their piggy bank without losing the quarter you just gave them, you may want to wait a bit.
Calculating the right amount
A common way to settle on an amount is to multiply the child’s age by $0.50. For instance, a 7-year-old would receive $3.50 a week, an 8-year-old would get $4 a week, and so on. This system, coupled with an automatic pay raise on the child’s birthday, also helps younger children understand the concept of earning more as they grow older.
Before deciding on the amount, consider how you expect your child to use the money. If they’re expected to save for their own toys, they’ll need less than if they’re responsible for buying their own clothes.
Setting guidelines
If your child is getting $5, give it to them in five $1 bills instead of one $5 bill. When you show them their weekly earnings like that, it’s visually easier to comprehend taking 20% of it to put into savings.
Saving can mean putting away a little money each week to pay for a large-ticket item (bicycle, computer, Legos), or so that they will have spending money of their own to use on the family vacation. Encourage your children to save up for a larger purchase so they can experience the pleasure of buying something on their own and resisting the desire to impulsively spend.
What about chores?
Some parents tie allowance to household chores; others prefer to separate lessons about money from lessons about being part of a family. If you are unsure which way to go, try option #3: pay your child a commission based on the chore they perform. For example, emptying the dishwasher might earn 50 cents, while pulling the weeds in the yard could earn more than that since it’s a bigger time commitment. The idea is that they earn money for successfully completing a job – not simply because you bugged them to clean their room all week long.
Earning a weekly commission based on work completed sets kids up for the real world. After all, if you don’t perform your own job duties, you don’t get paid.
When you teach your child about financial matters, do so in bite-sized pieces. Your goal should be to teach your child just enough to stimulate a genuine desire to learn more.
Allowance is just one great teaching tool that helps kids understand that money (yours and theirs) is not an unlimited resource, and this knowledge will help them to build responsible money management skills for the future. For more financial tips and resources, visit www.bayfed.com.
Bay Federal Credit Union is a local, not-for-profit financial institution with banking solutions for the whole family. (bayfed.com)
This column is sponsored by Bay Federal Credit Union
