Released Aug. 15, 2007
DODGEVILLE, Wis. — Families have many decisions to make about managing their money and whether or not children should get an allowance is one financial management choice parents need to make as their children grow up. Some parents are comfortable providing spending money for their children as requested. Other parents may be interested in helping their children learn to manage money and an allowance is one teaching method to consider.
“Children who get to manage an allowance tend to be better equipped to make financial decisions as they grow up,” says Ruth N. Schriefer, University of Wisconsin-Extension Iowa County family living educator.
Since an allowance provides a steady income, children get hands-on experience in learning how to handle money. They learn the benefits of spending, saving and sharing and they are less likely to routinely ask mom or dad for spending money. Children who receive an allowance make more decisions on their own and learn about comparison shopping, shopping for sales, media influence and other consumer skills. “An allowance can build a sense of responsibility as children learn from mistakes and celebrate their money management successes,” says Schriefer.
An allowance differs from spending money because it really is a share of a family’s financial resources. Like a paycheck for an adult, an allowance works best when a set amount of money is given regularly for a specific period of time so that children can learn to depend on the income and plan for expenses. And just like adults, children will learn to make financial choices based on their needs and wants.
Common questions from parents who are considering allowances are “how old should the children be”, “how much should they get”, and “how often should they get it”? The age of the child depends on his or her understanding that money provides buying power and some children reach this stage by age four or five. Other children may be six or eight before they understand the meaning of money and are ready for an allowance. Allowance amounts depend on the child’s age, the resources available, and the expectations that are connected to the allowance. An allowance for a first-grader might be intended to cover the cost of a book, a small toy, or a snack at a local store. An allowance for a teen might need to cover school supplies, clothes, gifts and entertainment. The timing of an allowance will change as the children grow. Younger children have a difficult time with long-range planning so a weekly allowance works best. Parents can consider a monthly allowance for teens who need to practice budgeting skills for the near future.
“It is very important for parents and children to talk about the allowance and agree on what is will be used for,” Schriefer says. Acceptable spending as well as expected savings and charitable giving need to be considered. Talks will need to continue as the child gets older to adjust the allowance amount and the expectations so he or she continues to learn to plan for expenses.
For parents considering allowances, another decision is if the allowance needs to be earned through chores, grades or behavior or if the allowance is given regularly without expectations. The key is to remember that the purpose of an allowance is to teach children to manage their own money, while the purpose of chores is to contribute to the successful running of the household without the expectation of being paid. A child who receives an allowance that is tied to chores, grades or behavior may relate to money as a bribe or a punishment. Regular allowances that are given regardless of household tasks or good grades or good behavior will help the child develop a more positive attitude about money. If the child wants extra money above the allowance amount, he or she can negotiate extra money-making opportunities at home.
When it comes to spending an allowance, parents need to remember that an allowance is a teaching tool for financial management. Parents can guide children through a decision-making process, help identify pros and cons to a potential purchase, or explain the consequences of a purchase, for example “money spent now is money you can’t spend later.” However, the decision on a purchase is the responsibility of the child. Decision-making skills learned through an allowance can help children build their money management ability as well as their decision-making skills in other life situations.
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http://www.uwex.edu/news/2007/08/kids-and-money-using-allowances-to-teach
Contact: Ruth Schriefer, (608) 935-0391
