Being a financial coach and a parent means that I frequently get asked questions about children and money. Many of us struggle as adults because we never learned how to really manage our finances. We wonder how we can avoid making the same mistakes with our own sons and daughters.
Introducing an allowance can play a role in helping children learn to save. But how much should we give them? Should the allowance be tied to chores? These are just a couple of the questions that arise.
Allowances are very personal, and many experts have conflicting opinions. As long as you remember that these are only opinions, here are mine:
- Throwing cash at children will not teach them about money. If you want them to experience a journey similar to yours, ask them to write out goals, help them open a bank account and show them how to keep a register of deposits and withdrawals.
- Many experts recommend that a healthy allowance amount is one dollar per year they’ve been alive. To some, this may sound like a ton of money! You may be screaming at the screen right now, “THEY’LL JUST WASTE IT!!!!”
And to that I say, “I’m sure he/she WILL waste it.”
I agree that your eight year old may not need eight dollars per week. However, I’ve met SO many college age children that have NEVER had money in their life and have no training, that they immediately spend every dollar and succumb to credit card temptations. They’re knee high in debt by the time they’re 22 years old and have no skills to confront the problem.
I’d rather have my child mess up an eight dollar transaction and learn a lesson than be lost at college with hundred-dollar decisions all around them.
A funny story: one friend removes what he calls “taxes” from his children’s allowance after giving it to them. He wants his family to understand early on the importance of a good tax strategy. That’s above-and-beyond anything I’ll recommend here, but feel free to be creative. I work with my daughter to allot some of her money for spending, some for saving and some for giving because I’ve found having those three “pots” very helpful in my own financial planning. As you continue your own financial growth and education, consider the ways you can pass the lessons you learn on to your children. You are helping to ensure their future financial stability – a priceless gift they will thank you for forever.