Teaching Kids Financial Management with an Allowance

by: Dan Florell, Ph.D.

“But Dad, I really want it!” whined the little boy. The tears began to well up as the father told his son that he could not have the toy. The little boy responded by yelling, “You never get me anything I want!”

As illustrated above, it is natural for young children to get upset when their immediate wants and desires are not met. Younger children have a particular short fuse when they are denied what they want. However as children get older and turn into adolescents, they need to learn how to deal with the frustration of not being able to get what they want. These skills take time and lessons have to be learned along the way. If the lessons are not learned, adolescent’s reactions to having their desires thwarted are often similar to those of young children.

The key is to teach children how to prioritize what they truly want and how to plan in order to get it. A good way for children to be able to learn these skills is through an allowance. An allowance lets children learn how to budget their resources to reach a goal. It also allows children to learn about the value of money and how to budget money effectively in order to get what they want.

Before starting an allowance parents should differentiate between children learning how to budget and manage their money and earning money. While earning money is an important lesson to learn, it is typically best to keep the two activities separate. An allowance should also be separate from typical chores around the house that everyone in the family is expected to do. The only goal of an allowance is to teach children how to manage and budget their money effectively.

Before giving children an allowance, parents need to decide on how much money should be given. When parents decide on a particular amount, they should take into account the child’s age, the family’s values, and what the allowance is meant to cover. For instance, children who are expected to buy their clothes with their allowance should be given more than children who are not expected to do so.

In addition, many parents choose to have their children divide their allowance into three categories. One category is for immediate spending on necessities or discretionary items. Another category is for saving which is meant for more expensive items that require a long term plan. The final category is for giving where children can decide on worthwhile charities to support. If parents want their children to appreciate giving to others, they may decide to provide a little bit more in their children’s allowance.

By the time children turn six or seven years old, they are ready to have an allowance. At this age, children are beginning to become aware of the value of money and they have basic addition and subtraction skills. It is best to start children off with a weekly allowance as it gives parents more control by limiting the amount given and it does not require children to have to budget for too long a time period.

As children get older, more and more financial responsibilities can be given to them. The goal is that by the time they become young adults, they will be used to managing their money responsibly. This means parents will not have to worry about financially bailing out their adult children down the road. All it takes is sitting down as a family and starting children out on an allowance.

This article was published in the Richmond Register daily Sunday on May 18, 2014.

Leave a Reply

Your email address will not be published. Required fields are marked *