- Teaching Kids About Money -
Allowance 101
By Arman Rousta
"Money is the root of all
evil." "Money doesn't grow on trees." "Show
me the money." What messages are you sending your kids about
money? Whether you are conscious of it or not, your children
will learn from what they see you do, more so than what you say.
When it comes to money issues such as financial responsibility
and budgeting, where and when do we expect kids to learn these
critical life lessons? It is certainly not happening in schools.
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It is incumbent upon parents
to take a proactive approach towards Youth Money Management by
putting a plan in place and monitoring in through the years to
see how their kids are responding and learning. Year by year,
it is important that kids become more independent in their decision-making
and personal responsibility.
Parents often put their own financial
struggles upon their kids in a way that paints a negative connotation
about money. |
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Step one of being able to teach
kids about money is to first manage your own affairs well, in
terms of keeping debts in check, paying bills on time, and saving
effectively for long term goals. Thereafter, an allowance is
usually the best place to start educating children; by throwing
them in the trenches with their own money, you empower and nurture
independence within kids. At what age should you start giving
kids an allowance? It depends on their maturity and intelligence
levels, although sometime between the ages of 8-10 is usually
appropriate. Ask yourself these questions to determine whether
or not your child is ready to accept responsibility for an allowance:
1. Does the child comprehend basic arithmetic (addition,
subtraction, division, multiplication)?
2. Can the child estimate the cost of at least some
household items, groceries, or toys, like a can of soda, paper
towels, or video games?
3. Does the child have the basic capacity to delay
gratification if reasoned with? (i.e. if you tell the child not
to eat candy until after dinner and then leave them in a room
alone, would they resist the temptation?)
If your answer is "Yes"
to all three of these questions, then your child is ready to
receive an allowance. How much they receive is a reflection of
what basic expenses you will expect them to cover with these
funds, as well as how much they can reasonably save or spend
on discretionary items, like toys and candy. Sit down with your
finances and figure out how much money you spend per child per
month on items such as books, video games, school supplies, haircuts,
and movies. Then, put this money in their hands and let them
manage their own affairs. Mind you that they will not always
make the right decisions, but that is part of the learning process.
There is a big debate in the
field of Child Psychology as to whether it is useful to base
children's allowances on their performance in school or other
behavioral factors, like doing their chores well and displaying
sportsmanship in their activities. Many say that financial punishment
and reward based on such factors ruins the morale of kids, and
that positive and negative reinforcement through parental feedback
is superior. Frankly, we disagree. To yell at, ignore or lecture
your kids when they get bad grades is both more damaging and
less effective than to simply reduce one's allowance or withhold
a reward of some kind. First of all, children like all people,
fall into different categories and therefore, will be responsive
to different types of feedback. Therefore, a basic allowance
that will cover basic necessities, should always hold. However,
for the perks, like video games and other leisurely activities,
we believe that parents should use their good judgement to structure
a reward system that fosters accomplishment, independence and
compassion. Working interactively with your kids to establish
realistic goals and accompanying rewards, which include college
savings dollars and charitable contributions in their names,
is one of the keys to the development of personal, fiscal and
social responsibility.
To learn more about topics related
to youth money management and education financial planning, visit
www.401kid.com.
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