The allowance? When should we start doing this for our kids? It is a common questions for many parents. And, quite frankly, one that doesn’t have a black and white answer.
One question many ask themselves is often, when it the right time to start an allowance? Is my child too young? Will he or she understand the concept? I understand as these are the same questions my husband and I asked ourselves in the past.
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- 12 Financial Lessons Every Child Must Learn
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WHEN TO START
There is really never a perfect age to start, but we started our kids when they were around 4 years old. The idea is for your child to have a basic understanding of money. He or she needs to understand that money is used to buy the things they need or want. They learn that you use it in exchange for goods.
The way to help your kids learn this concept is to play store with them. Create your own play money create a store with them. Have them shop and give you money to pay for things and then switch roles. Kids learn best when they think they are playing.
HOW MUCH TO PAY
Another question parents ask is how much should we pay each week? That is completely up to you. To start, many parents will stick at around $2 per week. You might even use the rule of $0.50 per year (so if they are 5, they would get $2.50 per week). It is important that you pay what you can afford – just make sure that it remains consistent.
HOW TO PAY THEM
When kids are younger, they don’t get the idea of paper money. They see coins and that is what matters more. Even better than 4 quarters for one dollar, is ten dimes.
The reason kids love coins is that it feels more real to them. They can slide the coins into their piggy banks. Not only that, but when you use coins, you can start to teach them how to add them to total another value. For instance, you can teach your child that ten dimes is the same as one dollar.
Read more: Use the Ticket Reward & Fine Method
HELP THEM SET GOALS
All kids have something that they want. For some it is a new toy and others a book. Still other kids would rather be able to buy a treat when the ice cream truck comes down the road.
Talk about how much what they want will cost and then help them figure out how they will save and pay for it. Help them with the math to figure out how many weeks it will take for them to be able to buy what they want.
Read More: Money Lessons Dads Should Teach Their Kids
HELP THEM CREATE A BUDGET
This ties into goals a bit, but will go a little further. When your child starts to earn money, help them create a budget. It should be basic and include sections such as savings, donating, toys and clothes (for example). Sit down and help them figure out how they should divide up the money they earn so that they are doing the right thing with each amount.
For example, if they receive $3 for the week, you might want to teach them to save 20%, donate 10% and then they can have the remainder for what they want. Make sure that you give them their payment in a method which allow them to divide it up into their own envelopes or other ways to set the money aside.
It is helpful to explain to your kids that everyone has a budget and you might even show them a few lines from your own. They learn by example, so if you follow a budget, they will too.
Read More: Teaching Teens About Saving vs. Spending
LEARN ABOUT BANKS
If they are saving, take them to the bank so they get to understand how it works. For some, this is scary as they think they are giving their money away, never to see it again.
Ask the teller to help your child to understand how you are just going to hold onto it until they want it back and if they leave it with them long enough, they will even give them a little extra money back.
AVOID TYING ALLOWANCE TO CHORES
The idea of an allowance is just to teach kids about money. It should not be tied to chores around the house. Kids need to do things to help around the house. These may include things such as making their bed, picking up their room, doing the dishes, dusting, etc.
Of course, if your child is looking to make more money, you can always tie those to additional allowance payments. For instance, picking up the family room without your asking or volunteering to mow the lawn when it is not their turn can be ways they might earn extra money.
No matter what methods you use, or how you pay your child, the idea is to help them learn about a budget and money. Setting them up for success as early on as possible will be one of the greatest gifts you can give to them.