While it doesn’t necessarily work for everyone, giving a child an allowance is a common tool parents have used for ages. Whether the motive is to provide children with an incentive to do their chores, educate them in financial literacy or just to give them a little spending money, an allowance can serve many purposes.
If you’re thinking about giving your kids an allowance, or are already paying them a set amount, make sure you’re getting the most out of your money. After all, your children are your most important investment, right? Right?
Like any investment, you need to do your due diligence and make sure your money isn’t going to go to waste. You can do this by educating your child about money before actually handing over any. If you want to allocate some money to your son or daughter as soon as possible, you could always deposit it in a child savings account first before you put it in their hands.
It’s important for children to learn about the value of money before they actually have any. As adults, sometimes it’s easy to forget that it took most of us our entire lives to learn what we know now about being fiscally accountable. Remember that your kids really don’t know anything about money except that it’s green, it’s paper and it gets them what they want–probably toys and candy mainly.
Here are a few things to keep in mind before your kids take their first steps into personal finance. You’ve heard these sayings many times and that’s because they’re easy to remember and true:
- Easy Come, Easy Go: Money doesn’t come easy and it’s important your children understand this from the get go. You work hard for every dollar and so should they. The more effort they put into earning their money, the harder it is for them to waste it because they know what it will take to get more.
- A Penny Saved is a Penny Earned: It’s important to know how to earn money, but even more so how to keep it. Once your child understands the value of money, help them learn to save it by shopping frugally and maximizing discounts. The more they get from their dollars, the more they’ll want to learn to earn.
- Make Your Money Work For You: Yes, the concept of investing may be beyond your child’s comprehension at this age, but if you can simplify it enough, you can give them a very early head start to becoming financially savvy. Instead of a piggy bank , let them store their money in the Parental Savings Credit Union with a generous savings rate. Sure, you’ll have to pay a little extra to your children when the principal is compounded, but the dividends you’ll collect as a proud parent of a financially responsible teenager or young adult is well worth it.
Allowances aren’t mandatory, of course. If you don’t feel like that’s the right parenting strategy for you, then that’s all fine and good. However, if you are going to give an allowance, make sure you’re using it for positive purposes.
It’s just as easy for parents to be irresponsible with money as children and if the right re-enforcements and education isn’t in place, you run the risk of planting bad seeds and habits that could take years or decades to reverse when your children become adults and that’s something no parent should allow.