Many parents use allowances as a tool to teach their children about money or to help them learn the importance of pitching in around the house by giving an allowance in exchange for doing chores.
While allowances are a great way for kids to learn about money management from an early age, do your kids really need an allowance? Well, no. Technically, they will probably do just fine without one. However, before writing off allowances completely, consider the following:
•Allowances give kids a feeling of independence. As they get older, kids really don’t enjoy begging their parents for money. They’d rather have their own. A regular allowance will give kids a feeling of independence as they save their money and spend it on whatever they want.
•Allowances teach kids how to save. If you give your kids an allowance with the idea that now they will be responsible for purchasing their own little extras like toys, treats, or movie tickets, they will be more apt to save it up for something they want.
•Allowances teach kids how to budget. As kids get older, they will be able to better understand how to budget as they set aside a certain amount for savings, clothes, and other items they may be putting their money towards.
•Allowances teach kids valuable skills early on. Giving kids an allowance will teach them about valuable money management skills and allow them to make mistakes when they are young instead of having to tackle these problems when they are older. Making money mistakes at an older age can have much more serious consequences, such as overdrawn checking scores or credit mishaps.
•Allowances make kids more aware of money. Kids don’t really understand the value of money until it’s theirs. When they are spending their own money instead of yours, they are more likely to make more informed spending decisions.
As you can see, there are many benefits to giving kids an allowance. If you plan on giving your kids an allowance, there are a number of things to take into consideration, including:
•What age should I start giving out allowances? Kids who are two or even three probably won’t grasp the concept of money, but four or five is a good age to start. At this age, kids are more apt to listen to your advice about spending than if you were to start giving kids an allowance at eleven or twelve.
•Should kids have to earn their allowance? Some parents give their kids an allowance as payment for doing chores. The choice is up to you, but many experts feel that paying kids to do chores and help out around the house denies them the important lessons that are learned about contributing to the family and cooperation. Also, as kids get older and get income from other sources, they may be less apt to do their chores.
•Will there be any conditions to the allowance? You may want to consider, especially at first, having kids set aside a certain percentage for savings, then the rest is theirs to spend as they want. Open a savings account for your kids as soon as you begin giving them an allowance so they can watch their money grow.
An allowance is a great way to teach kids about money.