STLMoms: Kids and Allowance – what should you do?

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(STLMoms) - Mom always said, "money doesn't grow on trees!" But there has to be a better way to teach our kids about the value of a dollar.

Pediatrician Dr. Matt Dougherty with Esse Health has some suggestions about how to handle allowances.

Saving money may be a New Years resolution, how to teach your kids about money including allowances and rules for starting children?

Why should a family even consider setting up an allowance? The lessons learned from having an allowance can be very important life lessons on how to properly save and value money. Most experts agree that an allowance can be an excellent way for a child or teenager to learn lessons on money management. There is very little benefit to setting up an allowance and having it only be for savings.  Allow your child the opportunity to spend the money to learn lessons about money management.  Mistakes will be made during this time and money will likely be poorly spent at times but this may be a critical time to learn some of these skills when the amount of money poorly spent may be small, rather than as a young adult when one or more credit cards may be available to use with spending.
Is there rule that is most important to follow when setting up an allowance? The most important thing to remember when setting up an allowance is consistency. There are no rules that are agreed upon by all experts when deciding to set up an allowance. Some rules will work better for one family while another set of rules will work better for another. The most important thing, though, no matter what age the allowance is started or what conditions are applied to the allowance is that the rules should be applied consistently for all family members at all times. One thing that is important here is to pay your child on the same day every week. This allows a child to learn how to properly budget their money and expenses. In addition, do not allow a child to take out an advance on a future payday. Doing so only supports the type of decision making that gets a lot of adults in trouble with credit cards. Let them learn the value of delayed gratification.

At what age should an allowance be started? While there is no absolutely agreed upon age range (and each family will need to decide on their own), most experts generally agree that it should be considered only after the age in which a child can understand the value and importance of money. This generally occurs at about the ages 5-6 years. In general, the older the child, the more likely they are to have an allowance. In this country, about 60% of teenagers receive an allowance.  Generally by 6th grade, many children have a level of independence that they are going around with friends and having access to some spending money would likely be a good idea.

Should an allowance be tied to chores? Once again, there is no right or wrong answer here but two schools of thought exist on this. One school advocates not tying allowance to chores. This school of thought argues that when chores are tied to allowance, before long, you may have a teenager who tries to bargain every time they are expected to wash the dishes. In this philosophy, the teenager is expected to do a certain number of chores just from being part of the family. In these families, the chores are not open to negotiation. If they do not occur, then the child loses a privilege, not the allowance. The other school of thought advocates viewing the allowance like the child`s paycheck. Just like in a workplace, if the work or chores are not done, then pay (or allowance) will be docked. Some families may even use a mix of these two methods. There may a certain amount of allowance the child gets every week and a certain list of chores they are expected to do. If they wish to earn more money, they can chose to do extra work to earn extra money.

Should any restrictions be placed on how the child can spend their money? In general, the more like the real world the allowance is, the more realistic the lessons learned about money management will be. With that said, some parents will put restrictions or rules in place on how that money can be spent. Allowing your child to spend five dollars a week on candy may not be the best idea in the world. In addition, some parents chose to give their child a larger allowance but have a rule that some necessities, such as school supplies come out of that allowance money. This may help a child with budgeting lessons as they will have to budget their expected expenses to figure out how much spending money they truly have.

One of the biggest questions that parents often have is how much a child`s allowance should be? Once again, there is no clear rule that works with each family here. Some experts advocate giving a child 1 dollar for each year old they are. Thus a ten year old would receive 10 dollars weekly. Others advocate giving half this amount- a ten year old would then get five dollars weekly. If the number is higher, then consider having the child be responsible for some of their necessities. If the number is lower, then consider having an option for the child to earn more money by doing additional tasks. Either way, the allowance should never be high enough that a child can purchase everything they want. This sort of lesson will prepare them for being an adult.

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