Allowance is the dreaded calculus final of my parenting years. I consider the idea, ignore it, worry about it, and then do nothing but order a pizza. I scraped by my college calc course, but now, decades later, I don't want to fail in teaching my children the benefits of smart financial sense. So I've decided to do some research.
Money experts agree that when it comes to teaching kids about finances, allowance should be used as a great educational tool, rather than a form of reward or even as punishment when taken away. How soon should should parents start thinking about allowance and doling out the dollars? Here's what I've discovered:
- Your First-Grader Is Probably Ready
Start the allowance conversation as soon as your child shows an interest in money or can count confidently, suggests pediatric psychologist Dr. Joe Taravella. He and other experts believe that most children are ready to talk about -- and earn -- money when they are five to seven years old.
Of course, you'll need to tailor the allowance amount to what's appropriate for your child. Start by being honest about family finances -- how much things cost vs. how much is earned, and how credit cards work -- to help kids connect the dots and understand the associated responsibility.
- Choose a Way to Structure Allowance, and Stick to Your Decision
According to T. Rowe Price, about 70 percent of kids get an allowance. There are lots of ways to structure allowance, including these popular methods:
- Allowance For Chores
When kids earn money by doing chores, they learn the tenets of any big-person job. Experts are in hot contention about the efficacy of this classic method. But if you're considering it, ThreeJars.com is a great place to start (teaching the value of dividing money into what to spend, share and save).
- Allowance For Desires
Experts advise that you refrain from requiring kids to use their allowance to pay for necessities, like school lunch. Instead consider having them use their allowance to foot the bill for toys, treats and extras, like video game upgrades.
- Allowance Just Because
Some parents choose to provide an allowance because their kids have hit a certain age. The risk? Children could grow up to become what one economist calls slackers," with very little financial literacy. Dr. Denise Cummins, author and fellow of the Association for Psychological Science, suggests that negative attitudes toward school and work might be traced back to these approaches. Kids grow up to be students or employees who "don't see a connection between their performance and the grade or wages they receive," she says.
- Allowance Based on Meaningful Experiences
Meaningful experiences, including charitable giving, can be powerful currency, too. Think about letting your child earn trips to a water park or movies by joining an educational club or volunteering for a local non-profit. For example, time spent at a horse rescue farm could go a long way in building commitment skills while also earning a new hover board!
- No allowance at all
Instead of choosing a traditional route, consider one expert's suggestion that parents take a "reasonable request" approach, where in lieu of allowance, kids make sales pitches in "Shark Tank"-style. Parents listen to the pitches, and then decide if they want to pay for an item or if the kids must do something to earn the money desired.
- Allowance For Chores
- Set Rates That Work Based on Your Experience
Your kids will oversell the amount of allowance received by their friends. But don't let that sway you. Instead, CNN Money suggests you weigh your decision on personal values and common sense. Many parents start with an amount equivalent to what they were given as kids.
- KISS, Mom
KISS — Keep It Simple, Sweethearts — applies to allowance in the same way it applies to other systems of organization. The more spreadsheets and devices you use to determine allowance, the more likely you are to get frustrated and abandon the idea.
Apps like Allowance Manager streamline the process by allowing you to transfer money into an account. Little hands won't handle cash, and you won't have to run to an ATM on allowance day. It's also OK to keep allowance tracking low-tech. Laminated charts, white boards, and clipboards are all fine ways to monitor allowance.
Giving allowance can be simple, streamlined and a great learning experience (unlike calculus) when you team up with your kids and commit to a plan that fits your family. When did you finally take the leap, and what allowance method works best with your kids?