Teaching your kids to spend and save money responsibly will help them in the long-run!
We were inspired by a fun conversation with a newsletter subscriber about the surprisingly complex decision to give or not to give... your child an allowance. There are several opinions and theories about how to do this and the sorts of things a child must do to earn an allowance. What they all seem to agree on is that it is important to talk to your child and teach them about money so they can develop important financial management skills that will help them make smart decisions in the future.
It’s a good idea to start thinking about this if your child is in preschool or elementary school. Your child is starting to think about money, and you can help them understand how money is used in daily life whether it is buying food to eat, clothes to wear or a fun game to play. Here is a rundown of some popular styles of allowance-giving and some ideas to help you decide what’s best for your family. This article does a more in-depth explanation of the different styles.
Earn Allowance by Doing Chores
This seems to be the traditional understanding of allowance that many of our parents used with us. Whether you give a set list of chores for each week or find opportunities for your child to go above and beyond to earn some extra money, the idea is that there is no free money. The emphasis here is on developing a strong work ethic, however, if your child decides that they will forgo an allowance to get out of chores, that might make this system fall apart. The article above seems to favor this approach, so check it out if this is the way you want to go.
No Chores Allowance
This approach takes the chore element out entirely and asserts that children should still be expected to contribute around the house, but it is not tied directly to an allowance. Instead, the allowance is used as a learning tool to help children understand how to use the money and learn from inevitable mistakes along the way. One approach focuses on teaching children to allocate money between Spending, Savings and Giving. For more on this, check out “The Opposite of Spoiled,” by Ron Lieber. The challenge with this approach is that it does not reinforce the idea that work ethic can influence your earnings, so here is another approach that offers a hybrid system where chores are not required, but additional housework opportunities can help increase the child’s wealth.
Another popular option is not to give allowance at all. This article sums up some of the reasons not to give an allowance. The article does point out that you still need to teach your child about money, but that allowance is not essential in communicating your family values and spending habits.
No matter what you choose to do in your own home, we encourage you to think about the best way to talk to your child and involve them in financial decisions in a positive way as much as possible. If you have a great allowance system in place, please share it on our Facebook page. We’d love to hear from you!