Teaching your kids about money management? Deciding whether to give a child an allowance is an important step. The decision to provide allowances (or not) really depends on what system works best for your particular family and each particular child. If you are thinking of giving your child an allowance, clarify your goals and the purpose of the allowance first. Here are some questions to ask yourself when considering allowances for your children.
When Should I Start?
You can start giving your kid an allowance when he or she understands the concept of, and has an interest in, money. No specific age is right or wrong -- each child is different, and the age at which a child is ready to handle money will vary.
How Much Allowance Should I Give My Kid?
Many parents choose to provide a weekly dollar amount equal to the age of the child (for example, $11 a week for an 11-year-old). But the answer to this question really depends on what you want your child to spend the money on. Are you only providing money for incidentals (such as to buy a cupcake at the school bake sale, in which case the amount will be smaller), or do you want the allowance to cover larger purchases like clothing, toys, and outings with friends? A good rule of thumb is to start out small and as the child gets older, expand what's included in the allowance.
If your child is a pre-teen or teenager, consider asking them to make a list of what they think their allowance should cover. This can help both you and your child understand what you'll pay for and what needs to come out of the allowance, eliminating the need for negotiation over every purchase.
Should I Attach Strings to the Allowance?
Another important consideration is whether or not to attach rules to the allowance. If you don't want to give your child complete discretion over how the money is spent, consider these ideas.
Tie the allowance to household chores. Having children do household chores is a good way to teach them responsibility and important life skills. Tying the allowance to the completion of household chores can help them develop a sound work ethic, so make sure that kids follow through with their assigned tasks.
Encourage charitable giving. Requiring that part of your kid's allowance go to a charity or cause of the child's choice is one way that some parents teach their children about generosity. Helping them research and choose among charities can be a fun family activity.
Encourage saving. Some parents believe that requiring their kid to save a certain portion of their allowance (say, 25%) encourages saving in later life -- especially after their savings are large enough to put into a bank account, and you can show them the magic of compounding interest. Whether or not a saving plan is right for your child is up to you.
An allowance is just one way in which you can teach your child about money management. To learn more about teaching kids about money, and how to make smart financial decisions for your entire family, get The Busy Family's Guide to Money , by Sandra Block, Kathy Chu, and John Waggoner (Nolo).