This article originally appeared in the March 25, 2009 issue of the St. Louis Post-Dispatch.
As every parent knows, balancing the family budget is tougher today than ever. That means it’s more important than ever to teach your children money management skills.
Establishing an allowance for your child is a great way to teach the basics of money management on a small scale, setting them up for a lifetime of responsible financial decisions. With an allowance, your child can learn to make responsible choices, deal with limited resources, and understand the benefits of saving and charitable giving.
There is no particular age that is best to start with an allowance, but consider starting by the time a child is 10 years old. By then, most children have had some experience making thoughtful spending decisions but still look to parents for guidance.
“By this time, pretty much every school-age kid knows that the general economy is in trouble,” says Dr. Ken Haller, a pediatrician at SSM Cardinal Glennon Children’s Medical Center and associate professor of pediatrics at Saint Louis University School of Medicine. “Giving your child an allowance and discussing their decision-making regarding this money can give them an idea of what you as a parent face in terms of budgeting, as well as giving them some feel of control in their lives when they see news reports about people losing jobs and houses.”
How much allowance should you give? It's depends on your financial situation and what kind of commitment you feel that you can comfortably keep. Experts generally recommend that kids get 50 cents to $1 per week for every year of their age — $3.50 to $7 for a 7-year-old, for example.
Regardless of how much you choose, give the allowance regularly and increase the amount as your child gets older.
Should an allowance be tied to chores? Again, it's a personal choice. Some experts think it's important to make this connection so children learn the relationship between work and pay. Others say children should have a responsibility to help with housework, above and beyond any financial incentive. Ultimately, you must decide what works best for you. Whatever you decide, be sure that you and your child understand the arrangement.
If you give an allowance for doing housework, make sure your children understand what their responsibilities are, and the consequences of not doing them. You might want to involve them in choosing the chores, and then keep a chart posted to remind them what needs to be done.
It's important to be consistent. Following through on your promise to give a regular allowance sets a good example for your children and is an incentive for them to honor their end of the bargain. If you don't keep up with the allowance, they might lose that incentive and stop doing the chores!
How should children spend their allowance? It's best to have them use it for discretionary things, not essential purchases such as food or clothing. This lets kids make buying decisions — and mistakes — without dire consequences. You may want to encourage children to set aside a portion for charity and another portion for savings. If so, let them choose where to donate the money. It may be a cause that a child can relate to in some way, like an animal shelter or a group that helps sick kids.
If some of the allowance goes to savings, consider setting up an account in your child’s name at a local bank. This way, your child can keep track of the money. Many banks offer special bank accounts for kids, and your child may enjoy the experience of getting mail, even if the mail is a bank statement.
Once kids become teenagers, you may want to provide a quarterly clothing allowance in addition to the weekly allowance. If you do, establish a reasonable budget and allow your children to spend it as they wish — but also to honor its limits. If your son chooses to buy a $95 shirt or your daughter opts for a pricey handbag, for example, they might have to make compromises on other clothing choices.
There is no single correct way to handle allowances. As you decide when to start, how much to give, and whether you want to link the allowance to chores, it's important to make choices that fit your family.
“And since your child is likely aware of the larger economic crisis, don’t be surprised if they sometimes want to give some of their allowance to people who are less well-off,” Dr. Haller adds. “Help them decide what agency or charity they may want to make a donation to so they get the most bang for their buck, and then be proud that you’re raising a kid who cares about others.”
Dr. Bob Wilmott is Chief of Pediatrics at SSM Cardinal Glennon Children’s Medical Center and is a Professor of Pediatric Medicine at Saint Louis University School of Medicine. If you have a question about your child’s health, go to the “Ask Dr. Bob” section of the Cardinal Glennon Web site at www.cardinalglennon.com.