Managing allowances for children
Deciding whether to give children an allowance is a family-by-family choice. Allowances can be used in a positive way to teach children how to make decisions, how to prioritize the difference between needs and wants, and how to handle money. For some parents, giving a child an allowance is a way to avoid disputes and can help the parents teach their children the family's values about money.
Giving a child a regular allowance can be one of the best ways to teach the child how to be a successful money manager. Allowances can help children begin to understand:
--How much things cost;
--How if money is spent on "x," there won't be money left to buy "y";
--How it's necessary to save money now to spend more later; and
--The difference between what is needed and what is wanted.
An allowance gives the child the opportunity to practice spending, learn how not to spend everything they receive, practice saving and/or investing money for short and long-term goals, and sharing it with others. Going through the steps of earning, saving and deciding whether to spend the allowance now--or not--is a skill that will last a lifetime. Allowances give children the opportunity to make decisions on their own and learn about comparison-shopping, shopping at sales, and other consumer skills. Allowances also can promote a sense of responsibility as children learn from both their mistakes and successes.
Parents are encouraged to pay their children's allowances regularly so children know when to expect the money--and can plan accordingly. An occasional advance is OK, but if parents are willing to come to the rescue too often, the child won't learn why it's important to plan their saving and spending. If they know Mom or Dad will fork over the money whenever they ask, what is the child really learning? Former KSU Family Financial Specialist Katie Walker advised parents not to rush to the aid of a child who has overspent. Take the time to discuss the situation, consider changes and let the child propose a solution that doesn't involve parents simply doling out the needed cash.
As a pint-sized portion of the family's resources, the promise of an allowance is actually a contract between a child and his/her parents. The importance of honoring the contract is one of the first lessons an allowance provides. While parents want (and need) to guide and advise their children's money decisions, it's best not to direct and dictate. Be patient. It takes time--and practice--for children to learn to manage money and develop financial responsibility. Overreacting to mistakes with money is bad. It will lead to children thinking that money is all-important.
There are two big hurdles parents need to be aware of when establishing an allowance system. One is whether to tie an allowance to good behavior. If an allowance is used for reward and punishment, the allowance may become a power issue between parent and child. It also doesn't develop character but can instill the notion that the only reason to behave is to get money. A more positive way for parents to reward children is to separate the reward from the allowance. The reward could be money, but could also be treating your child to a special event, new game or movies.
Tying receiving an allowance to completing household chores can also cause problems. Parents who tie allowances to chores hope to teach children the value and ethics of paid work. When chores aren't completed, the allowance is docked or withheld entirely. Other families choose to withhold the child's cell phone or restrict their computer or TV time.
When parents give their children allowances, many things happen. Because parents want the allowance system to work, they tend to talk more with their children about money. They discuss the purpose of the allowance and give lessons about how to handle money. These parents are also more aware that they need to set a positive day-to-day example that they want their children to follow.