The average U.S. kid’s allowance is now $30 a week, according to a recent survey from the American Institute of Certified Public Accountants. Unfortunately, only about half of allowance-giving parents talk regularly with their kids about money – despite the fact that 75% of those surveyed said the whole point of an allowance is teaching the value of money and how to use it responsibly.
Okay, moms and dads: Time to parent-up.
Handing over $30 (or whatever) each week with little to no input is the easy way out. Don’t do it! Take the time to impart money lessons that will serve your children for the rest of their lives.
Here’s what an allowance can teach your kids about the value of money.
To get maximum value from money, we must learn to control it. Make budgeting a part of your child’s allowance regimen. Some people hate the B-word. So call it a “spending plan”: Here is how I’m going to plan how my money will work for me.
For example, suppose your kid’s allowance is $12 a week and he’s required to save one-third and give away one-third. He’s saving up for a $20 toy – but then he wants to get $4 worth of candy at the drugstore.
Teachable moment alert! “You’re allowed to spend up to $4 a week any way you like. But ask yourself this: Is the $4 in my spending plan?”
Your kid might decide to buy the candy anyway. He might also get mad later when he realizes that $4 worth of fleeting pleasure means waiting an extra week to get the toy. Which brings us to the next value-of-money topic…
Mistakes happen – but we can learn from them
You didn’t actually forbid that $4 candy purchase; all you did was suggest that your child think it over. If he bought the sweets and is now super-morose about waiting seven entire extra days to get that toy, you’ve actually done him a favor. Better he learns about buyer’s remorse now than, say, when he’s driving away from a luxury auto dealership later on.
Maybe your kid could do extra chores to recoup that wasted cash. And if not? Here comes another value-of-money lesson…
When you can have anything you want, nothing is particularly valuable. But once a kid waits five agonizing weeks to get a toy (or six weeks, if he caved and bought the candy), then finally having the item will be sooooo rewarding.
Unless it isn’t. As in, “I thought this toy was going to be so cool, but it’s really not that great.” This is a super-effective way for your kid to learn the fine art of discernment: Does this [whatever] have the same value as the money I’m going to have to trade for it?
Too often we adults struggle to fulfill our children’s every desire, only to find that they lose interest quickly. Until the next new thing comes along, that is, the one they know will make them truly happy. (It’s called the hedonic treadmill, and plenty of adults ride it nonstop.)
But when kids have to put up their own money, they will learn some things just aren’t worth it. A popular meme shows a teenager saying, “Once I started spending my own money, I realized mom was right: We do have food at home.”
That $5 burrito still looks tasty, mind you – but it doesn’t look five bucks’ worth of tasty if said bucks are coming out of your kid’s own pocket.
Along those lines, an allowance can teach that…
Money is finite
Kids are constantly exposed to a culture of more-more-more. No wonder they ask for everything they see. It can be tough for parents to say “no,” either because they don’t want to deal with the tantrums or because they want their kids to have the best of everything.
Trouble is, this gets our kids accustomed to instant gratification. Not a good look.
An allowance can teach them a very basic life lesson: Money is finite. If you buy the candy, you have to wait for the toy. That’s why we seek the most value for the money we have.
This is a critical tool in the personal finance arsenal. Without it, your kids might reach adulthood thinking they deserve everything they see – and that if they can’t buy it outright, there’s always credit cards.
Instead, let them know that with smart money management they can eventually have almost anything they want – but they can’t have everything they want.
This isn’t about the short-term saving for a toy, but longer-term goals. Not many 9-year-olds are going to ask about investment vehicles, but you can talk about how important it is to save for the things you want.
For example, will your kid want a car when she’s old enough to drive? Better start saving. Or how about college – will she be expected to have some skin in that game? She really better start saving.
It’s not that her allowance will get her a brand-new Maserati or a four-year Ivy League education. What’s important is that saving becomes a habit. Teach your kids this phrase: Pay yourself first.
Giving = connection
Kids are naturally empathetic. That’s why some parents swear by the “three jars” method: money earmarked for spending, saving, and giving. Let your children choose where the giving-jar cash goes. (Hint: It will likely be some kind of animal charity.)
When you encourage them to give, you’ll be showing them that their actions can make a big difference. You’ll also be showing them the true value of money: Even a few dollars from each person can change the wider world.
It’s about learning the value of money
An allowance is a perfect way to teach kids the value of money. The stakes are low and the lessons are reinforced every week. Talk with your children about smart money habits and you’ll give them the tools they need for lifelong financial security.
This is your chance as a parent to instill the right habits. That means saying no to your child and making him or her responsible for their own actions. That’s not always easy for a parent to do but it can be incredibly valuable to the child.
–By Donna Freedman