Allowances can help children learn money management skills
As they learn how to save and spend money they receive, children learn money management lessons that will last a lifetime.
Allowances are an American tradition of sorts. Through this system, kids learn basic money management skills as they learn to live on a specific amount of money for a specific period of time. In the best of circumstances, adults will foster an environment in which young people learn to plan and set financial goals.
According to Michigan State University Extension, children generally receive money in one of four ways:
- they earn it through work
- they are given money as a gift
- they are given an allowance
- they are given money as they need or want it
Of these, the last one is probably the least effective and often the most costly. By simply being handed money upon request, youth fail to learn that money should be earned.
When children are paid for doing specific chores, they learn responsibility and that in the “real world” earning money can be difficult. When paying children for doing work, it is important that payment is reasonable based on the task being completed; overpaying them for an easy task is as counterproductive as underpaying them for a difficult one.
There are typically two different methods for giving allowances:
- children may earn it through specifically assigned tasks
- it may be automatically given without any such requirements
The key is for parents to choose the method that fits their needs and the needs of their children, and to stick to it. If, for example, children are led to believe that the allowance is automatically given without expectations, through parents’ actions or words, it is ineffective to later withhold the allowance as a punishment. It’s also generally unwise to pay for things that should be done anyway, such as brushing teeth, taking a bath, or behaving and working hard in school.
It’s very important that adults decide what limits, if any, will be set pertaining to spending and saving allowances. For instance, if allowance is intended to be a reflection of the adult world, children might be required to divide their allowance into money to be spent freely, money to be saved and money to be used to help others. Allowances might be made up of funds to be used to meet specific basic needs, but there should also be some money available for fun in order to ensure children learn to make wise choices. It is also best if allowances are given at regular intervals and are for the expected amount. Imagine how it would feel to work and never know when or how much you would be paid!