Monday, August 15, 2011

Allowances for Children

Allowances can help children understand the concept of budgeting and saving, but we have to teach them. A regular allowance helps kids take responsibility for spending decisions and encourages independence. Instead of getting money 'on demand' whenever they need it, children with regular allowances can learn to plan ahead--to anticipate spending needs and make choices about what's most important.
What Experts Say About Allowances for Children
What age?
If you decide to give an allowance, start one as soon as your children start recognizing money's worth--kids do this fairly early.
Don't give an allowance until children are old enough to manage it. You don't have to give one until your children are at least six years old. There's no need to rush things and preschoolers generally don't understand the abstract idea of money anyway. Once children start first grade they begin learning about money in school.
Keep the system simple so you can manage it. Denying kids an allowance doesn't make it easier to limit the amount of money they get their hands on. Because most children will get the money out of parents anyway, it's better to teach them how to manage it themselves than allow them to nickel and dime you to death. Plus, using an allowance gives parents and children more control over the children's finances.

How much?
Give children enough of an allowance so they can squander it, but not so much that you'll be upset when they do. Sit down with your children and decide what expenses the allowance will cover and try not to underestimate a kid's cost of living.
Allowance doesn't depend on a family's financial situation to the degree you would think. It  depends on how much money parents think kids need access to. Most kids have a limited amount of things to spend money on--no matter what their family's financial situation is.
Ask others what they pay but go with your own instincts and values for what you believe is appropriate. Keep allowances reasonable. Overdoing it gives kids the impression that things come too easily; underdoing it gives them the impression things come too hard."

How often?
You should pay allowances on a regular schedule. Weekly payments are best for younger children because long-term gratification isn't their strongest suit. As children get older, monthly payments may be a better strategy--this is where budgeting skills come in. If they spend it all in the first week, it's gone. Teaching children to budget in their teen years helps save them from the consequences of not knowing how to budget as they get older. It's better to not be able to go to the movies for a couple of weeks when you're 16 than not being able to pay rent or a car payment when you're 25.
Whatever payment schedule you choose, stick to it. Forgetting to pay an allowance does more harm than not giving an allowance at all. You need to model responsibility if you expect your children to be responsible.

What for?
One of the most controversial issues regarding allowances is whether you should expect children to do chores in return. Child-development experts generally say no.
There are risks in linking allowances to chores. It sounds like a good idea at first because we want children to have experience actually working for money, but, the problem is that it undercuts the idea of the family as a moral unit.
For instance, suppose you're giving your son an allowance for mowing the lawn, but then your neighbor offers him slightly more for mowing his lawn .… Does that mean your son should stop mowing your lawn and mow the neighbor's instead?
If you think the family is a primary economic unit--like a business--then that's what your son should do. But, the family isn't that. Parents should communicate to children that the reason they need to do chores is not because they'll be rewarded with money, but because they are a family.
Give children a basic allowance that isn't linked to chores but linked to spending responsibilities. This money is to teach them how to handle money.
Some parents pay children for good grades. This isn't a good idea either. parents shouldn't bribe children or pay for performance. It undermines the kind of lessons we want to teach our kids and becomes manipulative.
Instead let children know how proud you are with extra hugs, words of encouragement, or special treats such as stickers or a later bedtime--anything but money. That way the virtue of doing homework or getting good grades becomes its own reward, and kids learn the personal satisfaction that comes from doing a good job.

How do you get them to save?
The point is to know your own kid's personalityand to realize that all kids respond differently to money--even kids in the same family.
Some kids will save on their own; in fact some are little hoarders--it's almost hard to get them to spend money. These children may want a share savings account and wonder how to make their money grow. In this case, you should respond to your child's lead and capitalize on what he naturally wants to do. Kids that don't want to save, will need extra encouragement. Require them to save a percentage of their allowance, but try to make saving fun. For example, have them save their money in a fun piggy bank--something simple so they can see their money grow. When they save enough, help them make their own purchases so they see themselves being rewarded.
Kids need to save for something specific. If they are young they should be saving for something very concrete--something they can realize in a short time. Start small. Put them in charge of the single thing they most like to spend your money on, whether it's comic books, video arcade games, or popcorn at the movies. Saving for short-term goals rewards them but also teaches them they don't have to have everything right away.
For really young children, putting money in a savings account can mean out of sight, out of mind. However, as they get a bit older, explain how accounts work and how interest makes savings grow. Plus, at this point, they may have more money to put in the account.
Another incentive is to match what they save. This can motivate kids, especially if they're saving for something costly. It gives them an incentive to accumulate a certain balance.
Parents often want older teens to save for long-term goals--college, a new car, or a down payment on a first house--but don't think they have the right to insist. It's the same as not allowing children to buy illegal items.
Parents should involve their children in family decision-making about finances such as purchasing a new vehicle or saving for a vacation. If you're setting money aside for a long-term goal such as buying a house or saving for retirement, involve your children. If money is doing well in the stock market, let your children know so they learn about the stock market--be open about finances.

Should you dock their pay?
Docking allowance as punishment isn't good. Children should learn the consequences of their behavior or poor decisions in more appropriate ways. If you dock their allowance they'll ask for more money anyway. When kids misbehave, it's better to make the discipline fit the deed than to dock their allowance.
Parents should at least have a responsibility for basic living expenses. Beyond that, a child's income from jobs and allowances needs to be negotiated and clearly understood between parents and children. You are helping kids learn how to handle money and make informed decisions. Allowance isn't a one-size-fits-all issue and it's something parents and children alike will need to work through. The important thing is communication--that's how kids learn these skills.


1 comment:

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