By Owen Jensen
Allowances are a useful teaching tool when you want to teach your kids money management. They can be introduced at a young age and developed as the child grows, so they learn the value of money. They will also learn about earning money as a reward for work and saving for a rainy day.
Very young children usually have a fascination with money. When they begin to show this interest you can introduce the idea of getting a regular allowance. The amount does not matter; you could choose any amount that fits within your budget. But, it should be the same amount on a regular basis.
For a small child getting an allowance once a month will not be seen as a routine event. It will be more like a one off surprise each and every time as their perception of time differs greatly from an adult’s. Payment of the same small amount once a week will have a greater impact than a larger amount once a month.
It makes sense to tie the payment of the allowance to household chores as this can introduce the concept of earning. However, doing this runs the risk that the child will choose not to do their chores and not get paid. It is usually better to pay a bonus amount linked to chores if this is your choice. That way if they don’t complete their chores they still receive an amount of money that they can learn to manage.
You should allow your child to spend their money on whatever they want, even if you want them to save. Sooner or later there will be something they want that they cannot afford. This is the perfect time to explain how saving works. They will need to save the money, and add it to their next week’s allowance to buy the item they want. Some children want to save all their money, but eventually they will want something badly enough to dig into those savings.
It does not take long for most children to understand that money has value, and that a balance between saving and spending should be struck. Older children could be required to deposit a proportion of their regular income into an interest bearing account. This will help them to save for long term goals and recognize that there are benefits in earning compound interest.
Teaching your kids money management is something they will appreciate their entire lives. Providing your children with an allowance lets you introduce the basic concepts of managing money. Then, gradually develop more complexity as your children mature.
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Jensen, Owen "How To Teach Your Kids Money Management." How To Teach Your Kids Money Management. 21 Jun. 2010. uberarticles.com. 5 Aug 2014 <http://uberarticles.com/finance/how-to-teach-your-kids-money-management/>.
APA Style Citation:
Jensen, O (2010, June 21). How To Teach Your Kids Money Management. Retrieved August 5, 2014, from http://uberarticles.com/finance/how-to-teach-your-kids-money-management/
Chicago Style Citation:
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