How and Why to Give Kids an Allowance

coins-in-handThe days of paper routes are over, yet the market is flooded with gadgets and games kids insist they must have in order to simply exist. It’s a tough parenting world today. We want to teach our kids responsibility, work ethic and long term gratification. These values can be modeled, and they can also be instilled in the younger child. Once your child is eight or nine years old, it’s time to start.

Ground Rules

One of the ways to instill these values is through having your child earn an allowance. It’s a wide range here, given the huge maturity differences between eight year olds and fifteen year olds. Some basic pointers on establishing the ground rules and expectations for an allowance follow.

  • Select what works for your family and good luck!
  • Work together with your child to establish the the rules and expectations.
  • Decide on what chores will need to be completed and what the payment will be.
  • Will this happen on a monthly basis or weekly?
  • Can the child accomplish part of the list and receive partial payment?

The more you engage your child in this process, the greater sense of ownership they’ll have. If they suggest they don’t want to work for an allowance, that’s fine too. Just let them know they won’t be receiving any discretionary spending money each week. That may eventually begin to burn!

Quality control

Will you ensure that the chores are completed to the best of our child’s ability in a timely manner or will you ask your child to check behind himself? Remember, this is a learning process and won’t necessarily go smoothly out of the gate. Work together to look at the final product. This will reinforce the value of responsibility and pride in one’s work. It’s a slow lesson to learn and trait to develop, but you will be giving them a gift that will last longer than any of the latest must have gadgets on the market.

Encourage your child to set short and long term goals with the allowance he receives. Setting aside a portion of the allowance each week might result in a trip to the Disney Store for a favorite toy or figurine. A short term reward might be a trip to the ice cream shop. Encourage, empower and reward your child throughout the process. Establishing the foundations for an allowance will help develop the values of responsibility, work ethic and long term gratification that are so critical in all aspects of life. Good luck!

Teaching Kids About Money

kid moneyHere are 10 some smart things to know when teaching your kids about money.

  1. Start early in life and modify to be age appropriate. Get young children (ages 3-6) involved in the grocery shopping and have them choose which items to buy based on a pre-set amount.  As they get older (ages 7-13), concepts such as comparison shopping, growing your money through saving and investing, and borrowing money become important.

  1. Walk your Talk.  Impulsive buying and racking up credit card debt are behaviors that don’t go unnoticed by your children.  Don’t shy away from explaining to your kids where all that money in a paycheck goes. It’s invaluable for them to learn that just because something looks good, it doesn’t mean you buy it.

  1. Don’t underestimate the allowance.  Once your child starts school, introducing an allowance is a good idea.  Treat their allowance as if it were their own paycheck and set aside 20-30% to savings.   As they get older, you can start to allocate a portion of their allowance to pay for something that they really enjoy. They’ll learn about budgeting, savings and also comparison-shopping to find the best deal.

  1. Give them the power of earning money on their own.  In addition to an allowance, encourage your child to earn money through projects or help them to brainstorm ways to make money. Once they start to earn money through their own hard work and effort, their interest in learning about money management also increases.

  1. Get your kids involved in budgeting.  It’s helpful to include your children in planning for large family expenditures such as vacations and summer camps. How you came up with the budget number is just as important as what it is – especially if it was derived from a monthly savings that you’ve set aside each month.

  1. Encourage them to participate in saving or investing their money.  It’s never too early to open a savings account so they can learn the concept of compound interest. Use allowance and earned money as a way to show how their income can be allocated to different buckets: short term spending (candy at the movie), long term savings (new mountain bike), and investment for their future.

  1. Set financial goals to teach savings and borrowing.   Rather than buying the latest product automatically, show your child how to save for these items. Lend them money at a simple interest rate so they learn the concept of time value of money.

  1. Make it a game.  Every kid, no matter the age, likes the challenge of a game.  Make it a family game night and bring out the Monopoly or Life board games.  There are computer games that teach kids the basics of running a business such as Zoo Tycoon and Sim Coaster.

  1. Start using online financial tools now.  If your child uses a checking or credit card account, there’s no reason why they shouldn’t also track their spending and savings using the latest tools. New services like MoneyStream uses a simple calendar based system to show where money is going and analyzes past spending to predict future inflows and outflows.  If your child is in college you can easily monitor the checking balance and know when to make a transfer (or give them a refresher course on managing their money).

  1. Check out more resources for teaching kids.  There are many resources that provide guidance for teaching kids good money management skills.  Moneyasyougrow.org, Warren Buffet’s SMsCKids.com (Secret Millionaire’s Club) and, Independent Means (www.independentmeans.com) are just a few to check out.

Christy Ross, the Chief Marketing Officer of MoneyStream and a mother of 3 boys, has built a long career in the financial industry. When she’s not balancing the demands of 3 busy boys (ages 6, 10, and 13), she’s helping financial technology start-ups grow. While sometimes missing the mark on walking the talk (don’t we all), she strives to help her kids become good stewards of their money and ultimately their life.