Some parents dread the idea of simply giving kids money. As a parent myself, I don’t want my kids to grow up feeling entitled and spoiled.
What I want is for my kids to learn how valuable and hard to come by money is. I want my kids to be responsible with their money.
As parents, it's our job to set good examples and create learning experiences for our kids. It's one of the reasons why I created A Smart Way To Start. I wanted to impart some of the knowledge I learned from working in the banking and finance industry, without overwhelming the kids. I broke down important money concepts into rhymes to make it enjoyable and fun for kids to read!
Allowances Teach Financial Responsibility
I advocate for financial responsibility and the best way to start with that is from childhood, building up children’s confidence if handling money, and this is particularly important for girls. This is why I would recommend giving kids an allowance, at an early age. Before you think: "Isn't giving an allowance spoon feeding money to your kid?" let’s consider the learning opportunities that arise.
To raise financially smart and savvy individuals, we need to expose them to money. An allowance is a great way to teach kids about money because it gives them the chance to learn and fail in a controlled environment. The key to making the allowance a learning tool, is to make sure that you set conditions before the kids can receive their money. Do not just give it out, you have to make sure that they also "work for it". This prevents kids from developing a sense of entitlement when it comes to money.
Here are 5 tips for you to make sure that allowances are as educational as possible for your kids.
TIP 1: Tie Your Kids' Allowance with Their Chores
Making chores a condition for receiving the allowance ensures that kids will still "carry their weight" in the household. And you have to be strict enough to make sure that kids are really doing their chores well. Quality work pays. Sloppy work doesn’t. Do not let your kids get away with substandard work. Make sure that they know that you will only give their allowance if they do their chores the right way - and with the right attitude!
This kind of condition trains kids on the value of money. When you tie the allowance with chores, it becomes their "salary" for doing their housework well. (Please note that we would not advise to tie an allowance to homework and studying. This can be counterproductive.)
TIP 2: Let Your Kids Have the Freedom to "Earn" More
Aside from receiving a fixed allowance for the regular chores, give your kids the chance to earn more pocket money. Assign monetary values to extra chores that they could do in addition to the basic ones they're supposed to be doing.
This allows them to "earn" extra money at their own choice and give them the freedom to control their "income" and learn how long it takes to earn a certain amount of money. If they aspire to buy something, it gives them a chance to calculate how much time it will take them to earn enough, depending on how hard they work. Having these optional and separately priced chores gives them the chance to manage earnings and to negotiate - a skill set they will need later in life.
TIP 3: Let Your Kids Negotiate
While the fixed allowances are not up for discussion, let the extra-chore ones be. Part of encouraging financial responsibility is also proper valuation: knowing the value of your contribution. Kids need to learn how to negotiate and ask for proper compensation. I can’t emphasize enough just how crucial this skill set is when they enter the workforce. Practicing at home gives them a head start in life.
To practice negotiation, price the chores lower and see if they will try to ask for more. If they do, good. Negotiate, haggle, and compromise with the kids for a fair price. If they don't, then it's your job to make sure they learn how to ask for fair compensation.
Negotiation is a particularly important skill for girls: it empowers them to value their skills’ values, allowing them to reduce the gender pay gap and enter the workforce on equal terms with boys.
TIP 4: Stick to the Allowance Budget
If your kid runs up to you telling you that they spent all their money but would really really like to buy something and “please, please, please! I promise to be good!”, resist the temptation to simply give them more. It will give them the idea that you will always be there to bail them out.
Unless there is an emergency, let your kids feel the consequences of their actions. Do not give them more money unconditionally, but rather offer to them to do extra chores for more money.
TIP 5: Give Your Kids the Freedom to Manage Their Own Money
Let your kids do what they want with their small amounts of money. Feel free to suggest how to save or allocate their allowance but don't dictate what they should do. If they want to spend it on a book, let them. If they want to buy chocolates, let them. If they want to save it, let them.
You can suggest or help them out with saving or donating or opening a bank account, but never force them to. Letting your kids exercise control and freedom over their small allowances will empower them to be smart and responsible. They will learn the consequences of every money decision they will make. If they will spend it all on a toy, then they'll realize they'll need to work for more money. If they save it, then they'll feel the joys of having more money for something later on. This will set the basis for responsible behavior when they receive larger amounts of money, for example as gifts on birthdays.
In the End, It's About the Learning Experience
The important thing is that the experience and consequences that come with each money decision they make imprints on them. We want to make sure that the allowances we give them teach valuable lessons they'll keep for life. Given that adult money habits are largely shaped by age 7, it’s important to start very early.
At the end of the day, it’s about allowing children to grow up and go through life being savvy and responsible with money, and knowing their worth.
