Creating an allowance for your child can be a great way to teach them about money. Unfortunately, most parents don’t do it the right way.
Instead of teaching important money lessons, the child’s allowance just ends up being a few dollars that are handed over at the end of the week regardless of effort, and without any discussion.
There’s a better way to give your kids an allowance, whether you’re sending money overseas to a child with Remitly, or you’re handing over the cash in person.
Only Pay for Extras
The first mistake parents make when giving their children an allowance is to give them money for doing chores around the house. No child should be paid to do their normal chores. After all, does anyone pay you to do the dishes or the laundry? Will anyone be there to pay your child for doing the dishes or the laundry when they move out?
Another problem with paying kids for chores is the possibility that they may decide to stop doing their chores because they don’t need the money anyway!
Instead, only pay kids for doing extra work. Pay them for painting the living room, helping build the deck, or raking the leaves. Don’t pay them for making the bed or folding their laundry.
Make Budgeting Part of Their Allowance
Kids won’t automatically learn how to spend their money just by having it. However, most parents fork over the cash and that’s about it.
Instead, make budgeting a part of your kid’s allowance. That means helping them decide what they want to save for. Those things might include:
- A school or class trip
- A car
- A new computer or phone
Make sure to talk with them about charitable contributions as well. Help them identify a charity they would like to donate to, and help them donate a portion of their allowance to that cause.
Open a Bank Account
Most of us don’t put all of our money under the mattress or in a jar. Instead, we utilize banks. Give your kid a head start dealing with the banking industry by opening an account.
When you open an account for your child, it gives them the opportunity to learn how to write checks, use a debit card, and check their balance. Just make sure you’re authorized on the account. That way, you can keep track of your child’s habits and discuss changes that may be needed.
Don’t be afraid to share information about your bank account too! Invite your child to budget with you so they can see just how much bills cost, how much interest you’re earning on savings accounts, and how you never overspend so you don’t get stuck with an overdraft fee.
Give Them a Lump Sum
It isn’t uncommon for parents to pay children on a weekly basis. This is one option, but it doesn’t really match up well with the real world. Most of us are paid biweekly, and adults regularly deal with large sums of money, not just small pocket change. That’s why some financial professionals recommend giving kids the chance to manage a lump sum.
For example, instead of paying your child an allowance every week, pay the full amount out at the end of the month. Instead of relying on the fact that they’ll get some more money in a few days, your child will be forced to think carefully about how much they can spend now so they’ll still have plenty to spend later when they need it.
Do you talk to kids about how much their work is worth? Probably not, but that’s how it works in the real world. Give your kids a leg up by negotiating their allowance and creating a contract.
Outline exactly what is expected of them in order to make a certain amount of money, and have your child sign it. It will prevent arguments in the future, if they don’t do the work and don’t get paid, but it also gives them an incentive to work harder to make more. They can clearly demonstrate how hard they have been working, and why that hard work deserves a raise.
A good allowance isn’t necessarily one that involves a lot of money. Instead, it involves open, honest discussions about that money. With the tips on this list, you will be able to provide your child with a firm financial foundation that will boost their chances of financial success when they become an adult.