Age-by-Age Guide to Giving an Allowance
By: Susan Solomon Yem
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| "Mommy, there's a new Barbie. Will you buy it for me?" "Hey, Dad, a baseball card shop just opened up downtown. Can I have five dollars to buy something?" | ||
| For too many children, Mom and Dad are walking ATM's, eager and willing to dole out cash at the push of a button. But in reality, parents should be financial advisors, teaching their children the value and responsibility of money before the "buy-me's," take over. What a child learns at home about the proper use of money is what he carries with him through life. Experts say one of the most effective teaching tools for wise money management is the allowance. At what age to begin and with how much money are important questions for families to consider. | ||
| Preschoolers Financial awareness starts at a fairly early age. Children as young as three already understand what money is. They may not be able to differentiate between a quarter and a nickel, but they know what the coins are used for. | ||
| When your child reaches the age of four, you can give small change as a weekly allowance. For this age, money still does not hold any particular value. Ask your child to save it in a piggy bank rather than try to spend it right away, especially since there will be few things he can afford. | ||
| Gradeschoolers A child's ability to handle money sensibly depends on several factors, as Dr. Marjorie Beeghly, development psychologist and research director of the Child Development Unit at Children's Hospital in Boston, Massachusetts, explains, "There are four factors which influence a child in this area: his cognitive abilities (can he conceptualize things), family relationships, peer pressure, and the child's personality. Kids understand the value of money in a rudimentary way very early, but when they begin concrete operations at what is called the 'five-to-seven year shift' they are ready for an allowance." | ||
| Most experts agree an appropriate time to begin giving the first real allowance is when your child enters first grade; however, there is a difference of opinion as to the basis on which an allowance is to be given. | ||
| Financial planner and investment advisor, Carol V. Berman, believes that the allowance should be tied in with something the child is required to do at home: "People get paid for their work, children should get paid as well." | ||
| Harold and Sandy Moe, authors of Teach Your Child the Value of Money, suggest, "The allowance should be given, more or less unconditionally because of who your child is ... a member of your family who is unique and special." | ||
| As to how much to give, the Moes believe the amount of allowance should depend on the family's financial situation and recommend giving the child a large enough sum to buy something, but not so large that they are not required to make decisions such as, "Do I have enough to buy the doll and the jump rope, or can I only get one thing?" | ||
| Some experts recommend one dollar for each year of age, while others recommend giving money equivalent to half your child's age. Berman advises talking with friends to determine what other children receive. | ||
| In a national 2005 survey of nearly 1,500 children by the research firm Yankelovich, the range in allowance for 6- to 11-year-olds is $5 to $9 a week. For 12- to 17-year-olds, the average is $10 to $19 a week, and around 15 percent of 12- to 17-year-olds received $20 to $49 weekly. (Notably, the study found that fewer than 60 percent of children ages 6 to 17 get any allowance.) | ||
| Should you have a say in how your child spends his money? If the allowance is given unconditionally, it should be the child's decision, not the parents'. | ||
| At ages six to 10, children should be free to spend allowance any way they wish, even if you think an item was foolishly purchased. The Moes conclude, "Let him make his own mistakes now while the stakes are small!" | ||
| As a parent you may fear your child will be adversely influenced by peer pressure when deciding what to do with the allowance; however, Dr. Beeghly says that in spite of a child spending more time with siblings and peers than with parents at this age, the parents still have the strongest influence. | ||
| "Peer pressure has a big impact. It is very heavy on children, but how it affects a child and how he spends his money still depends on the family's values." | ||
| Working parents receive paychecks at the same time and place each week. Children also should receive their allowance regularly. You and your child should decide together on the time and place. As the Moes explain, "This is the child's first introduction to a consistent, reliable form of income." | ||
| Withholding the allowance should never be used as a form of punishment. The child might get the impression that the only consequence for indulging in unacceptable behavior is to be penalized a dollar. | ||
| Teaching How to Save After your child has had some fun with pocket money, he is ready to learn some of the things money can do for him. Berman urges parents to teach children how to save. "Allowance is part of spending, but it is also saving and learning about money," she says. "Americans don't save; they buy. It is important to make savings a habit. From the child's weekly dollar, 10 to 20 cents should go to savings." | ||
| "Kids vary on the desire to save versus spend," says Dr. Beeghly. "Again, kids tend to incorporate the family values. If you are savers, chances are your child will be, too." | ||
| Most banks encourage parents to help their children open up small savings accounts. Under some states' laws, savings accounts for anyone 18 and under are not subject to minimum deposit requirements or service changes as long as the account is in the child's name and social security number. | ||
| Tellers may frown on taking deposits of 10 to 20 cents. Your child can save regularly in a piggy bank at home; when it fills up, roll the coins in paper tubes and take them to the bank. | ||
| Teaching How to Give Many families want to teach their children how to give a part of their income to charity. The Moes provide some guidelines with the 80/10/10 percentage formula: 80 percent of the money going to what the child wants, 10 percent to savings, and 10 percent to giving. | ||
| Help your child decide which cause is worthy of their donations. Year-end reviews and raises should take place at the beginning of each new school year. As children mature and show a responsible attitude towards their finances, consider including enough money to cover their weekly school expenses and other necessities. | ||
| Dr. Beeghly recommends waiting until the child reaches at least 10 before incorporating this aspect; "The ability to plan for the future develops as the child matures. It is hard for children to plan for their needs. There is a danger that they would squander their money." However, experts agree that by junior high, parents can introduce the concept of budgeting. Some parents also give their teenage children quarterly clothing allowances. | ||
| For those purchases children want to make that will not be covered by allowance, the Moes recommend adding another dimension to the program: earning. In addition to regular chores of making beds, washing dishes, and so on, devise some other household jobs your child can do for pay. These should not be "busy work" activities, but something important that has to be done. | ||
| Children should not be paid for doing the work unless it is done in an acceptable manner. They have been hired by you to do the job just as any professional is, and they should be expected to do it well. | ||
| In addition to receiving money for their efforts, the children will develop pride in their accomplishments and satisfaction in knowing they earned the money they needed. | ||
| Tweens and Teens Many tweens and teens are budding entrepreneurs with ideas for profitable endeavors. Encourage and support their efforts, but allow them to shoulder the bulk of the responsibility. In other words, if they want to start a lemonade stand, buy the lemonade, but let them make it and sell it. It might be wise to ask them to pay you back for your initial investment as well. | ||
| "All children's personalities differ," says Dr. Beeghly, "and how they handle money will differ as well. Some kids are cautious and might be more willing to save while others will spend." Dr. Beeghly concludes it is the family relationships and the modeling of the parents which will determine a child's money sense. | ||
| In a recently published article in MONEY magazine, the objective of an allowance was defined as a way to develop financial self-reliance in children. "By the time your child is college-age he should be able to manage a year's expenses on his own."
Children who develop financial responsibility early will reap its benefits the rest of their lives. | ||
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