What are the rules when it comes to an allowance? Why should you start your kids on an allowance? These questions can be quickly answered in two articles that I read in Woman's Day magazine, September 2010 issue.
5 reasons to give your kids an allowance
If you're not already doing it, you may want to reconsider. An allowance can:
...teach them bout real life. Nothing beats an allowance for a hands-on course in values. Having their own money teaches them about responsibility, consequences, saving and charity.
...distinguish needs from wants. Do they really need that new PlayStation game or peace sign earrings? Having their own money makes them think harder about what to spend it on.
...put and end to the nickel-and-diming. You create a set budget item for yourself and stop that constant drip, drip, drip of money flowing from your pocket to random stuff for them.
...build trustworthiness. By giving kids money to manage, you demonstrate that you trust them. And they soon learn that to keep the money coming, they need to become trustworthy.
...promote self-confidence. Just as it does for you, managing money has a magical result on their self-esteem. Teaching them how to give some of their own allowance to charity, save some for a long-term goal and spend some now gives them the tools of self reliance.
The other article is "What About the Kids?
When to start: There are no set rules. However, Janet Bodnar, author of Raising Money Smart Kids, suggests waiting until kids are old enough to manage their money and understand the concept, which is around the age of 6.
How Much?: Though many families use age to determine amount ($10 per week or month for a 10-year-old, for example), Bodnar suggests you think about how much money your child needs. A 6-year-old might only use a few dollars a week for ice cream or toys, while a 12-year-old will probably use more things like movies, snacks and games. According to a 2010 study by American Express, the average allowance is $12 a week, or $48 a month.
How Often?: Whether it's weekly or monthly, kids do better when you stick to a schedule. Younger kids tend to manage their money more effectively when they get it weekly, since out of sight often means out of mind, says Bodnar. For older kids, consider paying monthly so they can learn about budgeting.
Work for Pay?: Think about your goals when it comes to the allowance-for-chores quandary. "If your main goal is to teach your kids to manage money, give them a basic allowance with financial 'chores' attached, such as paying for their own collectibles," Bodnar says. If you also want to teach kids the value of working for pay, pay them for extra chores on a job-by-job basis.
What About Saving?: No matter what the amount, encourage kids to save a percentage (having their own bank account is empowering for them), set aside a percentage for charity (they'll learn the value of giving back), and spend the rest.
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