Allowances, Earnings and Children
Providing children an allowance (a small amount of money set aside regularly for the child’s use) and supporting them in earning money are effective tools that can be used in positive ways to learn about money. Some guidelines on allowances for children are shared here:
• Having a money allowance, and managing the money well, is one of the best experiences that children can have in learning about money. Help children, as soon as they are able, to differentiate between coins and different money amounts. This may be as early as age 4 or 5. By the time children are 6 or 7 years old, they may be able to handle a basic allowance to cover their needs, plus some for personal use, saving and sharing.
• When preteen children are able to list their needs and rank them in importance, they can help determine their allowance needs. They learn that income first covers needs, that money is a limited resource and that the family’s financial situation affects the amount each member can use.
• Set guidelines for using allowances. This may include saving a percentage of the allowance, spending a percentage, or other priorities. After guidelines are established, counsel children on how they will decide to spend the money gained through allowance.
• Parents may not feel they can “afford” an allowance. However, if they track expenses, they may discover that the money doled out for children upon request or for special occasions is more than a predetermined allowance would be. Providing children with the money management experience offered by a regular allowance can pay dividends in how children use and manage money later.
• Explain that an allowance is not a reward or a payment. Instead, it is a teaching tool to allow children to gain money management experiences and make decisions that will allow them to function in the real world.
Earnings and Children
Earning money can give children a sense of freedom, recognition of their efforts and a pathway toward financial responsibility and independence. Parents can help children establish excellence in work standards and effort before they work away from home for others. Also, parents can help children find work suitable for their age, interests and skills. Parents and caregivers should not allow a child’s earnings to interfere with school or other priorities important to the child and family. Further, parents should work with children to manage any money gained through earnings in a responsible way. Teens with part-time employment should be encouraged to set aside a substantial portion or percentage of their earnings for future needs, such as attending college, purchasing a car or other items.
Money Management Skills and Children
Children grow in their ability to spend, save, share and borrow as they use money for each of these purposes. Children can learn about keeping money records, using savings and checking accounts, borrowing and using credit as they develop their money management skills. Set limits on what children have to spend and make adjustments as they grow older or their needs change. Also, take into account their opportunities to earn more and assist them to plan and budget. If children ask to borrow against their allowance, this should be treated in a businesslike manner, and such advances should be deducted from future allowances.
