Are Allowances a Good Thing for Kids

The decision to give kids an allowance is often a personal choice. Some parents believe that chores shouldn’t be rewarded with money, while others consider it an essential part of financial education. It can also be a cultural concern. In many countries, allowances don’t exist. However, in Canada, providing kids with a regular sum of money from a young age is normal.

For many children, an allowance is the first time they get real experience with earning, saving, and budgeting. It can also be an opportunity for them to learn the value of money, which is why many people believe allowances are suitable for kids. That said, there can be pitfalls, so regular discussions about money are necessary.

Allowances and financial education

How parents handle an allowance can have a significant impact on their children’s financial literacy skills. For example, one of the best lessons you can teach your kids is delayed gratification. You can explain to your children that their allowance can be spent on anything they want now, but if they save their money, they could get something more substantial. Delayed gratification is a money concept that carries on for life.

Speaking of life-long lessons, an allowance can also be used to educate your kids about wants and needs. You can explain that wants are things they can buy but aren’t necessary to survive. Needs are essential, so they need to be prioritized.

Another practical life skill that can be learned with an allowance is budgeting. This helps to foster budgeting skills that are essential for financial well-being. This early financial groundwork can make a significant impact on a child’s ability to handle money wisely as they grow older.

Using allowances as a life lesson

When you provide your child with an allowance, it serves as a hands-on method for instilling responsibility. By tying allowances to accomplished chores, children start to understand how the workforce operates. One strategy is to assign different amounts to each chore. For example, you might pay 50 cents to remove the trash and $2 to clean up their room. The idea here is to show that more complex tasks pay more, similar to the workforce.

While some parents might want to micromanage how their kid spends their allowance, you do want to give them some freedom. You want your kids to have independence and confidence in their decision-making. As long as you’ve provided them with information on how to make smart choices, you should let them spend their money as they see fit. Giving them this freedom empowers them and gives them a natural sense of achievement. They might make mistakes, but that’s part of the learning process.

Another potential positive outcome of providing your kids with an allowance is how it affects family dynamics. Since your children will now understand the value of money, you can discuss the family budget with them. Including them in the discussions can encourage them to set financial goals as a family.

How to structure allowances for a positive outcome

If you decide to give an allowance, it should have some structure as it can lead to better financial habits. One of the first things to determine is whether you will go with a chore-based allowance or something regular. When going the chores route, you give your kids a sense of earning through hard work. For those who don’t want to associate chores with money, you can go the regular allowance route, giving out a lump sum each week or month.

The next step is to decide how much to give. Asses your family budget and determine what’s a reasonable amount to pay. Some people will ask other parents what the going rate is, but one simple method is to give their age in dollars each week. That means if your child is ten, they would get $10 weekly. Don’t be afraid to adjust the amounts based on where you live. If you’re in a high cost of living area, $10 won’t go very far.

Another way to top up your kids’ allowance is to provide additional funds whenever they get good grades or reach some other milestone. While this may sound like a bribe, you want to explain that good grades are expected, but you’re willing to reward them for their hard work.

Final thoughts

By providing your kids with an allowance, you’re teaching them financial responsibility. This experience helps them learn about spending, saving, and budgeting, lessons that will last them for the rest of their lives.

Additionally, allowances provide opportunities for kids to set and achieve personal goals, such as saving for a desired toy or experience. They also get the independence they crave while you get some oversight in their spending habits. Overall, allowances are a practical tool for teaching valuable money management skills.