There are many ideas about allowance. Some parents refuse to give kids an allowance because they are supposed to provide for the kids. Other parents just give a weekly amount of money for the kid to spend. Others will give money for work—sometimes extra work or work that is already expected of them (making bed, brushing teeth, etc.). Regardless of where you stand, there are lessons to learn from an allowance.
In my opinion, the best and most powerful lesson comes from the allowance being tied to extra work. That is because sometimes in life we just have to do things without getting something in return. You as a mom have a ton of things that you have to do because you live that life and you don’t necessarily get extra incentives because of it (think laundry… ugh!). That’s lesson 1.
Lesson 2 is that money comes from hard work. We all want to raise kind, hard-working kids who become kind, hard-working adults. Having kids work for money helps them understand the value of hard work. Also, hopefully they start understanding that you also have to work hard for your money, and hopefully they have more of an appreciation for that.
I love talking about all things personal finance, so you know that’s coming. Lesson 3 teaches them so many financial concepts—budgeting, saving, investing, and so many more. We live in a society where we like and sometimes need instant gratification. This need can get people into trouble. I don’t know of many success stories following the mentality of spending a bunch of money impulsively. Therefore, patience with money is a valuable lesson.
Kids will be able to save their money for something they really want. They also have to learn how to budget because they have earned a limited amount of money. You can also teach them about investing and with your help you can actually help them invest their money. Banks and credit unions offer CDs or Certificates, which is a great way to safely learn how to invest.
With all of the extra money they are earning, you can take them to your bank or credit union and let them open up an account. You can help them establish a relationship and an understanding of how banks work by allowing them to have their own account. Depending on the state laws a parent or guardian will need to also sign up for the account.
When to start with allowances?
There isn’t a magic age to start doing this, but even kids as young as 3 start to understand that they want things. You will need to use your best judgement as a parent about the kind of chores you expect of your child at different ages and the payment. Getting kids to start thinking about this at a young age will help set them up for success long into the future. Finances are complicated, so start them young when they have the safety net of living with you to learn some of these lessons.
How do you handle allowances? What sort of jobs to you ask your children to do at home to earn the allowance?