Through an allowance, you can teach your child the value of a dollar and to be fiscally responsible. However, before beginning an allowance program, you may first want to determine which scenarios warrant a payment. Will you be rewarding your child for behaving well, earning good grades, finishing chores or going above and beyond their daily responsibilities? Experts agree that an allowance offers the opportunity to teach children about finances, incentives, and reality, but it should not be used as bribery.
When giving your child an allowance, be advised that you shouldn’t have to pay them to do everything. “There are certain things that you do around the house just because you're a member of the household,” says Gregg Murset, Founder and CEO of MyJobChart.com. As a parent, you do not get an allowance for what you do at home, so a child should not expect to get paid for doing chores, either. Instead, Murset suggest tying good work to a reward, because that’s reality. If you ask your child to wash your car, for example, it teaches them that following through with a job and doing it well, will earn them a paycheck. You can even take it a step further and surprise them with a bonus if the child vacuums or wipes down the interior without you asking. Children will make the connection that superseding expectations will earn them recognition for a job well done.
Psychologist Madeline Levine discourages bribing your child to do well in school. “All money does, whether it's for school or for chores around the house, is to say, ‘The only way that you can be motivated is if I motivate you,’ ”says Levine. If you are a parent of a teenager and provide shelter, clothes, and food, teenagers should be expected to get good grades and to work and learn in school because that’s important for their whole future, suggests Author and Youthologist Vanessa Van Petten. “I highly recommend to reward them for working in the home, but make sure they always get good grades, no matter what,” says Van Petten.
If you aren’t sure when to initiate an allowance program, Educational Psychologist, Michele Borba suggest starting as soon as your child can count to ten and understands that money is something you give in exchange for something else. Determining how much money to give and how often is going to be different for each child and family. “The end result for an allowance is to help your child learn financial responsibility,” says Borba. If your child is addicted to building blocks, for example, put them in charge of knowing how much you spend on them monthly. They can use their allowance to purchase the toys themselves, keep track of how much they are spending and managing their cash flow. As they get older, the process is still the same, but over time they become more responsible for handling more money.
Parents should stress to their child the importance of saving money, as opposed to being frivolous and compulsive. “Just like grownups, children have cash flow problems as well,” says Godfrey. When children begin to understand what their income will be over the course of six or twelve months, and what they want over the course of six month or twelve months, they begin to make connections between wants, needs and budgets, suggests Godfrey.
When putting together an allowance plan, it is important to determine how much income a child already makes, suggests Joline Godfrey, CEO of Independent Means. Children’s income is made up of money a parent spends on the child all the time, earned income which they make money on, and windfall money they may receive from birthday gifts, grandma, etc. “If you aren’t paying attention to all the other sources of income the child has, it may make the allowance irrelevant,” warns Godfrey.