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Allowance 101

Date posted:  4/24/15 10:15:00 AM Providing an allowance is a great way to teach money management.

Raising children to be responsible, kind and successful members of society is a top priority for any parent. Through teaching and disciplining, parents can show their kids how to be financially accountable. 

Offering an allowance is one way to provide necessary skills that will help young ones understand money management and even how to use a basic savings account. These skills can help a great deal in the long-term, especially as children grow up and begin budgeting on their own. 

Psychology Today indicated the three most common approaches to this subject include: 

  • Weekly allowance independent of chores 
  • Communal sharing and no allowance 
  • Allowance for chores 

Each family may need to implement a different system; however, teaching money management skills is important for all children. 

Follow these tips to help as you start providing your child with an allowance he or she can use to practice basic money management skills: 

Teach the value of money 
According to U.S. News & World Report, parents should provide allowances only when their young ones understand what money represents. The source indicated many experts believe a great time to begin is in kindergarten. 

"Children begin to learn what money is – like how the different denominations work – during their pre-kindergarten years, but their understanding of the concept and value of money does not emerge fully until 6 years of age or older," said Lorraine Breffni, director of early childhood at Nova Southeastern University's Mailman Segal Center for Human Development. 

It's important for parents to teach the value of money to their children. Consider asking kids how many quarters equal a dollar or other money-centric questions to test their understanding of how money works.  

The Wall Street Journal also indicated that having money of their own allows kids to decide exactly what to buy and determine whether they made a valuable purchase afterward. This will help cultivate an understanding of money's value and how to best budget over time for desired items.

"It's important for parents to teach the value of money to their children."

Commit to regularity 
PBS noted parents should stick to their decision regarding an allowance. If they decide to give their children $5 every week on Tuesday, this amount and timing should be followed regularly. 

"You can't skip, otherwise you're sending the message that regular payments aren't that important," Laura Levine, executive director of the Jump $tart Coalition for Personal Financial Literacy, told PBS.

Decide whether to exchange allowance for chores
Working to receive money is another way parents can help their children better understand the value of money. However, some individuals argue against this. Some believe children should learn to contribute to household upkeep without expecting anything in return. Yet each family is different, and  it may be worthwhile to have a discussion that includes the children before making decisions for the household. These discussions are a great way ensure comprehension of what the final allowance decision will entail.

Choosing the allowance amount
Every family is different, and deciding how much to pay kids can be difficult. Consider the needs of each child. For example, if one child earns money by babysitting or mowing lawns, his or her needs will be slightly less than someone who participates in after school activities and doesn't have time for a job. However, if a parent has a child who holds a job and another who doesn't, it's important to not send the message that the child with additional job is being punished with a smaller allowance. Provide the same allowance for all children, but make sure to tailor the amount to your kid's needs if they both have other sources of income. 

When figuring out how much to give, parents should also consider what the allowance will pay for. Would it be just toys or going to the movies or buying candy or snacks? Think about what your child will buy and what you are comfortable paying for as the parent. 

Encourage saving
In addition to teaching the value of earning money and budgeting, also make sure your child understands the importance of saving. Encourage him or her to put a little away each time he or she receives allowance or makes money at a job. Teaching children to save can instill good money managing behavior, helping them be more prepared later in life.