Do you give your child an allowance? A recent report by the American Institute of Certified Public Accountants showed that more than two-thirds of American households provide an allowance to children, and that the allowances average $68 per month in exchange for six hours of household chores.
If you’re considering giving your child an allowance, start by deciding how much is appropriate and what is expected in return, such as hours of chores, or an acceptable grade level for schoolwork. No matter the amount you choose to offer, take advantage of the opportunity to teach your child an ongoing lesson in financial literacy. Here are suggestions.
Pre-Tweens (below age 9). Introduce the basic concepts of income and expenses visually by having your child place the allowance into one of three buckets or piggy banks – save, give, or spend. Associate money with effort when evaluating purchases. For example, you can say that a new toy will cost five days of bed-making.
Tweens (age 9-12). Have discussions about your child’s long-term goals and how to save and budget in order to accomplish those goals. Provide concrete examples. An illustration: Explain that buying a new skateboard next month might mean foregoing popcorn at the baseball concession this week.
Teens (age 13 plus). Introduce the concept of interest and take on the role of banker by offering your teen a reasonable percentage on amounts saved. Alternatively, consider following the example of your employer, and match dollar-for-dollar the balance in savings accounts. Does your child need an advance on an allowance? Set an interest rate for loans and establish a repayment schedule.
Helping your children learn sound money management skills can be fun and may be a learning experience for you as well. If we can help, give us a call.