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Allowances and Chores
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Learn the best way to set your child's allowance — and whether you should reward your child for helping out with household chores. |
Kids and Money:
Allowance and Spending Decisions
Brought to you by National PTAŽ
by Paul Richard
Money gives people -- both young and old -- decision-making opportunities.
Educating, motivating, and empowering children to become regular savers and
investors will enable them to keep more of the money they earn and do more with
the money they spend. Everyday spending decisions can have a far more negative
impact on children's financial futures than any investment decisions they may
ever make. Here are 5 tips on using allowance and daily spending to get kids
started on the road to financial responsibility:
When giving children an allowance, give them the money in denominations that
encourage saving. If the amount is $5, give them 5-1-dollar bills and encourage
that at least one dollar be set aside in savings. (Saving $5 a week at 6 percent
interest compounded quarterly will total about $266 after a year, $1,503 after 5
years, and $3,527 after 10 years!)
Take children to a credit union or bank to open their own savings accounts.
Beginning the regular savings habit early is one of the keys to savings success.
Remember, don't refuse them when they want to withdraw a portion of their
savings for a purchase--This may discourage them from saving at all. You can
also introduce children to U.S. savings bonds. Bonds are still a good value,
costing one-half their face value and earning interest that in some instances
will be tax-free if used for a college education. Perhaps more importantly, when
given as a gift, bonds will not be spent immediately, reinforcing saving and
goal-setting lessons.
Keeping good records of money saved, invested, or spent is another important
skill young people must learn. To make it easy, use 12 envelopes, 1 for each
month, with a larger envelope to hold all the envelopes for the year. Establish
this system for each child. Encourage children to place receipts from all
purchases in the envelopes and keep notes on what they do with their money.
Use regular shopping trips as opportunities to teach children the value of
money. Going to the grocery store is often a child's first spending experience.
About a third of our take-home pay is spent on grocery and household items.
Spending smarter at the grocery store (using coupons, shopping sales, comparing
unit prices) can save more than $1,800 a year for a family of four. To help
young people understand this lesson, demonstrate how to plan economical meals,
avoid waste, and use leftovers efficiently. When you take children to other
kinds of stores, explain how to plan purchases in advance and make unit-price
comparisons. Show them how to check for value, quality, repairability, warranty,
and other consumer concerns. Spending money can be fun and very productive when
spending is well-planned. Unplanned spending, as a rule, usually results in
20-30 percent of our money being wasted because we obtain poor value with our
purchases.
Allow young people to make spending decisions. Whether good or poor, they will
learn from their spending choices. You can then initiate an open discussion of
spending pros and cons before more spending takes place. Encourage them to use
common sense when buying. This means doing research before making major
purchases, waiting for the right time to buy, and using the "spending-by-choice"
technique. This technique involves selecting at least three other things the
money could be spent on setting aside money for one of the items, and then
making a choice of which item to purchase.
Adapted from "Dollars and Sense," in the April 1999 issue of Our Children, the
official magazine of the National PTAŽ.
Paul Richard is executive vice president of the National Center for Finance
Education (NCFE), a nonprofit organization dedicated to helping people learn to
manage money.
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