Thursday, May 13, 2010

Allowance: When and how Much

“Mommy, I want a Barbie Doll. Daddy, I want a new truck.” If you are hearing these statements then it is time for an allowance. This can start as early as 3 years of age. Once your child expresses interests in “wants” (not needs) then it is time.

Three years of age may sound early but it is best to start young when your child wants to listen and learn from you. It is to late, if you wait until they are teenagers because at this age they already have a good handle on the “spending” stage. Plus, what teenager wants to listen to Mommy and Daddy about money. It is best to catch them early and instill these lessons to them.

So we now know when to start (as early as 3) but how much do you give?

Rule of thumb has been $1 per week per the child's age. So, if your child is 3 years old, you will give them $3.00 at the end of the week. Remember in my past blogs, put this money in their piggy bank. They don’t need to understand the banking system yet. All they need to know is where to store it in a safe place until they want to spend it. Now when they are in junior-high then yes, start incorporating the banking system.

Another way of looking at giving an allowance is determining what your child’s financial responsibilities are. For example, if they have to buy their own movie tickets and allowed one movie per week then you need to budget that into their allowance. Then, if your child spends all their money mid week they know that they don’t have enough left over and can’t go to the movies. This is a great lesson on opportunity cost: buying one thing over the other.

One mistake I want to point out is linking allowance to chores. Many child development experts say you shouldn’t do this. Doing household chores is just helping out, contributing to the family. An allowance is not an award system. It could be as “bonus” money if they go above and beyond the call of duty. However, an allowance is a way to start teaching your child that they have so much to spend on “wants” and to help them budget those decisions. Because in life you don’t get everything you “want” you need to pick and choose!

Save your coins, Susie Saver

P.S. Email Susie and tell her what you want to learn about at: susan@susiesaverbooks.com

Financial planning lessons are posted two times a month. Next lesson on, “Saving for your Goal”
 

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