How to Teach Your Child Financial Responsibility with an Allowance
Last Updated on 14 January 2024
As a parent, you want your child to grow up to be a financially savvy and independent adult. One of the best ways to achieve this is to give your child an allowance. An allowance is a regular amount of money that you give your child to spend, save, or donate as they wish. An allowance can help your child learn valuable money skills, such as:
- Budgeting and planning
- Saving and investing
- Spending wisely and avoiding debt
- Giving and sharing
However, giving an allowance is not as simple as handing over some cash every week. You need to consider several factors, such as:
- How much to give
- How often to give
- What to expect in return
- How to monitor and guide
Here are some tips and advice from parenting experts on how to set up an effective allowance system for your child.
Start early
You can start giving your child an allowance as soon as they show an interest in money, which is usually around age 5 or 6. This is also a good time to introduce them to the basic concepts of money, such as coins, notes, and values.
Set clear rules
You should discuss with your child the purpose, amount, frequency, and conditions of the allowance. For example, you can explain that the allowance is to help them learn how to manage money, not to reward or punish them. You can also decide whether the allowance is tied to chores or not. Some experts suggest that chores should be done as part of the family responsibility, not for payment. Others argue that chores can teach work ethic and accountability. You can choose what works best for your family, but be consistent and fair.
Use a simple system
You should use a system that is easy for your child to understand and follow. For example, you can use jars, envelopes, or piggy banks to divide the allowance into different categories, such as spend, save, and give. You can also use apps or online tools to track and manage the allowance.
Be realistic and flexible
You should give an amount that is appropriate for your child's age, needs, and goals. You can use this calculator to get an idea of how much other parents are giving. You can also adjust the amount as your child grows older, or when there are changes in your family's financial situation. You should also allow your child some freedom and choice in how they use their allowance, as long as they follow the rules and respect your values.
Teach and model
You should use the allowance as an opportunity to teach your child important money lessons, such as:
- How to set and achieve financial goals, such as saving for a toy, a trip, or a donation
- How to compare prices and quality, and look for bargains and discounts
- How to avoid impulse buying and peer pressure, and say no to things they don't need or want
- How to balance their needs and wants, and prioritize their spending
- How to be generous and responsible, and share their money with others in need
You should also model good financial habits yourself, such as budgeting, saving, investing, and giving. You can involve your child in your family's financial decisions, such as planning a vacation, buying a car, or donating to a charity. You can also show them your bank statements, bills, receipts, and investments, and explain how they work.
Praise and correct
You should praise your child for their efforts and achievements, and celebrate their successes. You should also correct their mistakes and guide them to improve. For example, if your child overspends their allowance, you can help them figure out why and how to avoid it in the future. You can also show them the consequences of their actions, such as having to wait longer to buy something they want, or having to borrow money and pay interest. You should not bail them out or give them extra money, as this will undermine the purpose of the allowance.
Giving your child an allowance can be a powerful tool to teach them financial responsibility and prepare them for the real world. By following these tips and advice, you can make the most of this learning opportunity and help your child develop a healthy and positive relationship with money.
Community Ambassador; as someone who was raised in a rather privileged family, I hope to address the inequity in educational outcomes based on the circumstance of birth. Bounced around between Australia and Singapore a fair bit.