When it comes to learning to manage finances, experiential learning is key. It is one thing to tell your kids about wants vs. needs or saving and spending, but helping them develop good money habits is truly about practice, practice, practice. Just like all those piano lessons and soccer games, giving kids an opportunity to try and try again with money will help them build stronger skills—not to mention confidence, independence and feelings of empowerment.
So if you’re not giving one already, it may be time for an allowance. A quick Google search will tell you that many experts say that giving an allowance is a positive experience for both kids and parents when done well (and yes, there are lots of pros and cons and different ways of deciding what “doing it right” means.)
The amount you give is far less important than the way you structure it—so think about what you can afford to do and stick to! There are guidelines like “one dollar per year of child’s age” but you’ll need to consider your family budget, how many kids you’ll be giving an allowance to and what you expect them to do with all that money.
While we can’t decide what’s best for your family, we do believe that kids can learn a lot from having an allowance. Here are some things to think through:
Give kids guidance when it comes to their allowance.
By the time kids can add and subtract, they can pick up basic concepts about money—the most basic being that it’s what you use to pay for their stuff! An allowance is a great tool for teaching how to spend, save and give. They’re going to do great at the spending, but they’ll need lots of guidance and encouragement with the other two. Don’t be afraid to let them make mistakes, either. Let them spend a little carelessly now while the stakes are relatively low, and use that as a teaching moment. Let them feel the weight of missing out if they haven’t saved enough for a planned outing.
One thing to consider: Create some rules/guidelines about how much allowance should go into each category. Example: your child gets $5 a week. $3 goes to spending, $1 to saving, and $1 to giving. As they mature, let kids have ownership over the percentage that they save and give away. And if you do have items you would prefer they not purchase due to your family beliefs, be clear about what the consequences are for contraband.
Make sure they understand wants vs. needs.
Any parent who’s survived a trip to the store with kids in tow knows the whining and begging that happens when they see something they just HAVE to have. With an allowance, kids begin to learn how to pay for things on their own, as well as realize the actual cost of things and how long it may take to save toward something. They also begin to learn the difference between a need, such as a warm winter coat, and wants, such as video games.
One thing to consider: Make sure your kids are clear on what needs you will provide for (such as food, housing, clothing) and what they are responsible for (maybe sports fees, toys, movies or music). Much of this will depend on your family budget, and it’s up to you how much detail you want to share about your family values and priorities around needs and wants.
To chore or not to chore, that is the question.
There is some division among parents and experts about tying chores to allowance: Those who favor it like that kids can connect hard work with earning money and learning valuable lessons about work ethics; those who don’t favor it say that kids should learn to be responsible and do what they should be doing (such as tidying up, making their bed) without any expectation of getting something in return. Regardless of which camp you come from, kids should get a full explanation of why you’re giving them an allowance, what your expectations are, and what, if anything, could change the amount they receive.
One thing to consider: A middle ground solution could be having a list of age-appropriate chores everyone in the family does to pitch in (making beds daily, picking up toys, putting away laundry, keeping bathrooms tidy) and an additional list of “above and beyond” tasks like organizing a closet, babysitting a younger sibling or cleaning out the garage that can help kids earn extra dollars.
Don’t just give money—talk about money.
Remember that even though your kids learn a lot through experience, they will learn even more from direct conversations with you. A recent T. Rowe Price survey revealed that just 44% of parents take advantage of “teachable moments” to talk about money. Don’t miss out due to fear or uncertainty! You don’t need to schedule time for a talk—just involve your kids in everyday activities like making a grocery list, shopping, planning for vacations and paying bills. At the very least, let them see that you do these things.
One thing to consider: Pay attention to what they ask and when they do, answer honestly. Letting them see how you make decisions about money will help them as they learn to make their own.