Why An Allowance Is The Best Tool For Financial Education
Monthly Money Tips that help parents impact their kids' future
As parents, we often wrestle with the idea of giving money to our children. Two opposing thoughts often come to play when we are dealing with giving children an allowance.
- First is that: I want to make sure that my child will never feel lacking and that everything he/she needs is taken care of.
- The second is that: I don’t want my child to grow up spoiled and not knowing the value of money.
These are both very valid ideas.
We want our children to have their needs met and some of their wants given. But at the same time, we want them to know that money is something that we work hard for and is something that is not given.
In A Smart Way To Start, I always advocate for financial literacy and responsibility, and I believe that one of the best ways to do that is to give your kids an allowance. It might sound counter intuitive, but an allowance will teach your kids a lot about money management.
What are the benefits of giving your kids an allowance?
It's our responsibility to provide our kids with proper financial education -- 91% of parents think so according to a Credit Suisse Pocket Money Study. Giving your kids an allowance will teach them to be responsible with their money. If you give them a reasonable (and age appropriate) amount of money, they will learn more about money and its value through practical experience.
An allowance is a fixed amount of money that we give to children on a regular basis. What they do with it is up to them. They can use it to buy toys or treats or save it for the future.
What's important to remember is this: The more we let kids have the freedom to spend their money, the more ownership they will take and learn to have for their financial actions. They will learn that once they spend their money it is gone forever. It makes them realise that either need to: save up for things that matter or spend only on things they need.
Guidelines to remember:
We want them to make sure our kids are properly provided for. But, we also want to make sure that our kids will learn valuable life lessons from what we give. We also want to make sure that they do not develop the thinking that “mommy or daddy will always give me money whenever I need it!”
With that in mind, I have tips that you can use as a guide for this practice:
Have a strict budget and stick to it.
When your child comes up to you and says that he/she spent all the allowance you gave, do not give them more. You have to let them learn the consequences of their spending decisions. If you continue to give them money even though they did not budget, they will see money as an endless resource.
Help your child to manage time and money.
Let your kids know that how much time will go by until the receive their next allowance. Break that down into bit-size chunks. For example for smaller children it is easier to give them a weekly allowance than a monthly one. Understanding how long a week is and how long you have to wait to get more money after you spent it all, is a very important part of the learning process.
Let your kids have the autonomy to manage their own money.
I know it might be hard to give your kids free rein over their money. But you have to understand that they can't learn if their hands are being held the whole time. We have to learn how to trust our kids and let them make mistakes in their own money decisions. Practical experience is one of the best ways they can learn to be mindful and conscientious about their money.
As parents, we want our children to develop positive money behaviours and a responsible mindset as they grow up. What we can do to help is to instill good habits from a young age.
Dear parents, be mindful that an allowance is not just a privilege you give to your kids that empowers them with choices. It is also an important tool to teach them about the responsibility that comes with choice.If you think these tips are helpful, subscribe to our Monthly Money Tips newsletter to get more tips from me!