It’s time to talk about the age old question for parents: should you give your kids an allowance?
I am participating in a “kids allowance debate,” and I’ll be arguing that you should give your kids an allowance. The matching article that argues that you should NOT give your kids and allowance can be found here: 5 Reasons You Should Not Give Your Kids an Allowance.
I think allowances can be a great way to teach your children about personal finance if done PROPERLY. Check out these five ways an allowance can help your kid:
1) Teach Kids The Value of Money
We have all heard the cliche “money doesn’t grow on trees.” It is true! Money does not just come out of thin air (unless you’re the Federal Reserve). We all need to work in some form, shape, or fashion to receive money. Helping kids to understand this early in life will help them to understand the concept of “hard earned money.”
2) Helping Children Understand the Benefits of Delayed Gratification
Many, many adults struggle with the “I want in now” feeling. They go out and spend money they don’t have for things they don’t really need. If a little bit of delayed gratification discipline were utilized, most folks would not be drowning in debt. This is where an allowance can come in. You kid wants that brand new sparkling scooter with a chrome handle bar? No problem, wait a couple of weeks until you have enough money to pay for it!
3) Kids Need to Learn Simple Accounting
It sounds a bit obvious, but some kids really need practice with simple accounting such as how much they have in the wallet, and how much they are making every week. This will help them to form the foundation of budgetary thinking when determining how long it will take them to save for their next desire. If the parent just throws money random the child’s way, they are less likely to pick up this important skill.
4) Educate Kids on the Time Value of Money
No one said allowances have to be boring or set in stone, did they? We make our kids allowance fun by actually adjusting the amount they get paid based on how much they have saved. We pay them a 1% interest on their allowance they have “saved in the bank” to encourage them to save. This helps them to understand the time value of money and good saving and investing habits.
5) Use an Allowance to Drive the Right Behaviors
No one said an allowance has to be used just to compensate kids for performing chores the last time I checked. We use our kid’s allowance to drive the right behaviors we would like to see as parents. Reading a book or doing something creative for an hour? That’s one dollar! Watching screen time, that’s minus a dollar. Nagging your sibling or having the wrong attitude, that’s also one dollar!
We use the allowance to giveth and taketh away 🙂 This helps us to teach our children the responsible way to act and helps them to build other habits and hobbies that are positive.
Summary on Child Allowances
As you can see, there is a right way and a wrong way to do the “child allowance” thing. If you are just straight out handing you kid money each week, you are not really using the allowance to its full ability. If you can put in the extra work to use the weekly/monthly allowance as a tool to teach your child personal finance topics, then you can really make the allowance count. Taking these extra steps will really ensure your child has a good footing in personal finance habits when they leave the nest.