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Teaching Your Kids The Value Of Money

Whether or not to give your children an allowance is a question all parents must answer. Here are some tips for when you've decided to put your children on your payroll.

What are your feelings about giving your children an allowance? While some parents believe an allowance is necessary, others don't. You might consider the view that an allowance is an opportunity to help teach your child about the value of money.

Decisions, Decisions

Deciding to give your children an allowance is relatively minor compared to the other issues you have to cover. When working out an allowance plan, you have to decide:

  • When to start giving it
  • How often to give it
  • How much to give
  • How it should be spent

When to Start

How do you know when to start giving an allowance? This decision is probably easier than you think. When you're out shopping together, do your children ask you to buy them things? Walk through most stores and you'll hear, "Mommy, buy me that toy," or "Daddy, get me a candy bar." Since these requests typically begin when your children are preschoolers, this is a good clue that they're ready to handle money. In fact, child psychologists confirm that pre-schoolers are beginning to understand the value of money, and they agree this is a good time to start giving an allowance.

How Often to Give

Since most pre-schoolers don't understand how to be patient, it's a good idea to start them out with an allowance once a week. As your children get older, you can decide together how often allowance should be given. An important thing to remember is to always give allowance to your children on time. For example, if you've committed to paying your children at 5:00 p.m. every other Friday, make sure you don't deviate from that schedule. This shows the importance of an allowance and following through on your obligation.

How Much to Give

The best way to determine how much allowance is appropriate is to consider:

  • You children's age
  • How much money you have available to give
  • What your children will be expected to pay for with the allowance

You might even talk with other parents who have children the same age to see how much allowance they give. It doesn't mean, however, that you have to give the same amount. Do what's best for you and your situation.

The needs of young children are relatively small, so their allowance amount should reflect that. Consider giving pre-schoolers no more than $1 to pay for special treats like toys or candy. As your children get older, however, it's important to reevaluate their allowance amount. A good thing to remember is your plan isn't set in stone. You can make adjustments as you go. Showing your children that you're flexible and understanding goes a long way in establishing good communication.

How It Should Be Spent

It's important to set expectations about how your children's allowance should be spent. Early on, you might consider having your children pay for:

  • Music
  • Video Games
  • Birthday presents for friends

As your children get older, an increase in allowance should correspond with an increase in responsibility related to their spending plan. You might want to add on:

  • Clothing
  • Vacation spending money
  • After school snacks

Remember that an allowance is a mechanism to teach your children about the value of money. Some parents don't believe it's a good idea to use it as a reward or punishment in areas such as:

  • Household chores
    • Doing household chores can be a way to teach and exhibit family responsibility. Some parents prefer to take away a privilege, such as after school telephone or television time, if chores aren't performed.
  • Schoolwork
    • Some parents believe withholding allowance isn't an effective tool to teach study habits. They might define a study time immediately after school before anything else can be done.

Making Adjustments

Remember that an allowance plan is something that can change over time as your children's needs change. You may find that the amount of money you're giving is insufficient to meet the needs you've established previously. It's all right to make changes as you go. Be sure to sit down with your children to make the changes together. It's a good idea to write down what you decide so there's no confusion later on.

Prepare an allowance plan to help your children understand the value of money and to help them establish a lifelong pattern of good money management. To learn more about teaching your children about the value of money, read the article Teaching Children Money Habits for Life, as well as our related articles in our Knowledge Center Library.

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