If you’re like most adults, saving money, investing and interest rates probably weren’t popular topics around the dinner table when you were growing up. As a result, many young people get thrown to the wolves when it comes to taking their first steps toward managing their finances. Without some type of financial education, many Americans learn by making mistakes.
Why an allowance? In the “old days”, an allowance was used as a reward (for good grades) or as a tool (mow the lawn and earn some green). But these days, giving a child an allowance is an important learning tool that can lead to a healthy financial future. Some good reasons for allowance include:
- When a child has a predictable income, they learn to plan for the future.
- Having a regular amount of their own income is the only way kids can learn to manage money.
- Kids need to be able to make mistakes when the cost is minimal.
When should you start an allowance plan? Start as soon as your child begins to express “I want!” for material things, usually around ages 3 to 5.
Should allowance be a reward for behavior, chores or homework? Surprisingly, this method is old school—today’s experts say NO. This could lead to confusing messages about why kids are supposed to behave. Instead, consider chores as an important part of being a responsible family member, not something to be rewarded with money. Additionally, if allowance amounts vary based on weekly one of the most important learning tools of an allowance system.
How Much? One problem with an allowance is giving too little. If the allowance isn’t large enough fo children to experiment and make mistakes with, it won’t have the learning effect you’d like it to have. Weekly allowance amounts can vary based on age, maturity level, family lifestyle and goals.