How parents can help their children develop smart money management habits from a young age
Determining your family’s philosophy around allowance amounts and methods can be quite tricky.
- What should an allowance be used for? Be clear about what you expect your child to pay for – this is a great lesson in needs versus wants! Be sure to include items that reflect your family’s values, such as savings accounts or charitable giving.
- How much allowance should my child receive? “One dollar per year of life, per week” is a common formula, but the reality is that many families simply cannot afford this amount. A better way to figure the amount of an allowance is to determine the cost of the items you’ve decided your child should pay for.
- For what behaviors should my child receive an allowance? None! Making allowances a reward for good grades or getting chores done sets up a parent to deal with a kid who’s decided to forgo chores (and allowance) for sleeping in, or one who demands payment for every deed performed, no matter how small. Neither are habits a parent wants to instill.
Giving children an allowance provides a safe micro-environment in which they can explore their personal financial values, where the consequences of mistakes are relatively minimal.